Reliance Industries Ltd (RIL) has signed an agreement with Mexico’s state-owned Petroleos Mexicanos (Pemex) for investment in the exploration and refinery sectors in that country. The agreement brings to the fore the question of whether the private petroleum company prefers going abroad rather than ‘Make in India’.
About three months ago, ONGC Videsh Ltd, too, had signed a similar agreement with a Pemex upstream company.
With lower realisation on oil and gas production and domestic production falling, the upstream segment is the only one of RIL’s businesses for which earnings before interest and tax fell in the quarter ended September. At Rs 818 crore, it declined 14 per cent compared to the year-ago period and 21 per cent compared to the June quarter this year.
At a time when RIL’s upstream business isn’t growing, analysts are puzzled as to why the company is looking at Mexico.
The reason lies in Mexico itself. As that country has “known” hydrocarbon reserves, any company should look at it, says R S Butola, former chairman of Indian Oil Corporation. In August, the Mexican Congress had passed an energy reform that opened the country’s oil sector to domestic private and foreign investment. The law, which ended 76 years of state control over the country’s vast oil resources, allowed non-government companies to operate for the first time since nationalisation in 1938.
Aptly called Round Zero, the first tranche of assets announced on August 13, gave Pemex a portfolio of assets to exploit on its own or through joint ventures with global oil companies. The state-owned company secured proven reserves of 12.45 billion barrels of oil equivalent (boe). In Round One, foreign and private oil companies will get the rights to 109 fields, with 14.61 billion boe in prospective resources.
Butola, also former MD of ONGC Videsh, said with global majors such as Exxon Mobil, Chevron and BP, Mexico would see competition like never before.
“The interest cannot be compared to India, as it will be similar to comparing apples with oranges,” he said.
Besides shale gas assets in the US, RIL has 13 blocks in its international conventional portfolio, including two in Peru, three in Yemen (one producing and two exploratory), two each in Oman, Kurdistan and Colombia, and one each in East Timor and Australia, amounting to a total area of 99,145 sq km. Mexico has the potential to unlock 29 billion barrels of deepwater reserves to foreign operators. The American Gulf of Mexico, contiguous to Mexican deepwater, produces 17 per cent of US crude oil, according to Energy Information Agency. This, Butola said, made Mexico even more attractive.
Under the memorandum of understanding with Pemex Exploración y Producción, RIL will assess the potential upstream oil and gas business opportunities in Mexico, as well as jointly evaluate value-added opportunities in international markets. As was the case with ONGC Videsh’s agreement, RIL will also share expertise and skills in the sector, especially in deep-water oil and gas exploration and production.
Of the 45 blocks acquired by RIL in India, the company has surrendered 38, after having invested $2.09 billion. In spite of 52 exploratory successes since 2002, it has managed to bring only three of these discoveries into production. Disputes over pricing of gas, approved costs and clearances for work programmes has put the company in direct conflict with the government, the Directorate General of Hydrocarbons, and the Comptroller and Auditor General of India.
Not surprisingly, therefore, as the risks and rewards are high in Mexico, RIL could well find the international business more rewarding than that in the Indian sedimentary basin.
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