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THE OIL & GASYEAR-INDIA

EXCERPTS

Summary and excerpts from the Oil & Gas Year 2012- India Publication

2

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TH E OI L AN D GAS Y E AR 2 0 1 2 - I N D I A

CONTENTS

Attention seeker: Interview with AK Arora ................................................................................................ 2Faster or slower: Diplomacy & Politics ........................................................................................................ 3Hydrocarbons Ho!: Interview with Mr. SK Srivastava ............................................................................ 4All Systems AOGO: Interview with Mr. Ashu Sagar ................................................................................. 4 Funds from Afar: Interview with Anupam Srivastava ............................................................................ 5Ploys & Policies ...................................................................................................................................................... 6Bullish in Bharat: Interview with RK Singh ................................................................................................ 7 Saga of Indian Hydrocarbons: NM Borah .................................................................................................... 8Oil Poor and Energy Rich: Interview with Avinash Chandra ............................................................... 8The Gentle Untagle ............................................................................................................................................... 9Total India: Interview with Vijay Kumar .................................................................................................. 10Shell India: Interview with Vikram Mehta ............................................................................................... 10Indian Oil ............................................................................................................................................................... 11

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ATTENTION SEEKER: INTERVIEW WITH AK ARORA

Assessments of individual investors and those of major oil companies show thatprospects on the ROI is weaker in India than in some other countries

In order to better facilitate foreign investments, India needs to have a good datarepository. This repository should contain information regarding where exploration has

or has not been carried out. The directorate General of Hydrocarbons is the

Government authority that is charged with building and storing this information.

In NELP (New Exploration Licensing Policy) we have made great progress and contractsof 235 blocks with investments totaling $16 billion has been signed so far.

Need for expanding Indias gas infrastructure and bring piped gas in a big way. Somebright prospects to do so would include:

o India- Pakistan- Iran pipelineo Shale Gaso Coal bed methane projections

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FASTER OR SLOWER: DIPLOMACY & POLITICS

Indian hydrocarbon resources are unexplored and approximately 250 wells weredrilled in 2011, a paltry number for a country the size of India.

These explorations that has occurred is mainly due to the NELP- NELP opened half ofthe sedimentary area in the country to production, and 102 of the 143 oil and gas

discoveries in India were in NELP blocks.

Close to 80 oil and gas companies are working in India today but few discoveries havereached their production stage. Companies in upstream sector are pushing the

Government to adopt an Open acreage Licensing Policy. Such a policy would enable

firms to examine blocks in greater detail and collect in depth data about an area before

bidding. The information collected can be shared with national databases, allowing the

state, as well as the private firms to benefit from the information.

Most of the Indias resources are offshore deep-water assets, which requireinternational technology and expertise to extract. To attract any large scale investors

from abroad, the Government must improve the overall investment climate in the

country. Out of 183 countries surveyed in a 2011 World Bank report, India ranks 132

on ease of doing business, 182 on enforcing contracts, 181 on dealing with construction

permits and 166 on ease of starting business.

To restart its economic engine and achieve greater energy security, the country needsto:

o Attract significantly more foreign direct investmento Reform its system of fuel production and distributiono Establish an energy trading network that is more regionally integrated

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HYDROCARBONS HO!: INTERVIEW WITH MR. SK S RIVASTAVA

With very large areas that still need to be explored; an open acreage policy will be avery good step from an Indian perspective.

When people around the globe see that a major such as BP is here, it gives themconfidence. With BPs entry a lot of good technology has come into India and is a very

good sign for the country.

We are currently in process of setting up a National Data Repository. We shall haveanother round of NELP and then move towards Open Acreage Policy

Since Bombay High, we have not had any discoveries that could boost the countrys oilproduction. On the west coast we are interested in the sub-basalt play. In similar

geological regions in other locations such as Madagascar and Mauritius, there have been

discoveries. If the sub basalt area proves to be successful in India, it would help us

improve our hydrocarbon self-sufficiency. I am very upbeat about the gas prospective

of the region. But in case of Oil we will remain dependent on imports.

ALL SYSTEMS AOGO: INTERVIEW WITH MR. ASHU SAGAR

Challenges facing the development of the Indian Upstream Sector:o Lack of decision making, which is the result of scams that have come to light over

the past 2 years and thus slowed Government working

o People are not making decisions based on what will benefit them but ratherwhat will not hurt them

Benefits of Open Acreage Policy:o From a companys perspective you can evaluate and specialize in certain geology

at your own pace. You look at the block in detail before you bid for it

o When NELP rounds come, there is a very short period of time during which alarge number of blocks are put on offer. Everybody knows that while today there

is an opportunity, the next one may come a full 2 years down the line. For this

reason, there is aggressive bidding. This will be avoided with open acreage, and

the bidding process will leave more value in the contract.

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o Allows you to look at more data before you make heavy commitments in termsof wells and long term take. For an exploration company it reduces the risks and

improves the possibility of finding hydrocarbons.

It is has not been able to gather much interest of Oil majors because they are not bigrisk takers. They are not players for small discoveries. They are only interested in the

elephants. For them, managing a big reservoir has the same cost as managing a small

one. Their overheads are so high that they wont make money on this that smaller

company can thrive on. We should encourage more medium sized companies to enter

our market.

FUNDS FROM AFAR: INTERVIEW WITH ANUPAM SRIVASTAVA

India 5thlargest oil refining country on earth accounting for 4% of the worlds refiningcapacity

India already serves the function of a refining hub in Southeast Asia due to its location,cost competitiveness and skilled human resource base.

Indias demand for liquid petroleum products is projected to grow by 4.7% over thenext 5 years, while demand for gas is expected to grow by 14% over the same period.

Currently natural gas accounts for 11% of Indias primary energy basket. India is alsoincreasing its LNG regasification capacity from 13 million tonnes per annum to more

than 30 million tonnes per annum by 2015.

To carry gas across the length and breadth of India, 8000 kms of pipelines are beinglaid, while another 5000 kms are in bidding process.

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PLOYS & POLICIES

India needs international oil corporations with strong expertise to enhance thecountrys hydrocarbons resources, especially in its deepwater blocks.

By 2031, the government predicts that dependence on energy imports will make upmore than 53% of Indias total energy consumption, as the countrys needs are expected

to sky rocket in the coming decades.

By 2035, India is expected to be the worlds fastest growing energy market and willmake up 18% of the increase in global energy demand, making it the 2 nd largest

contributor to this rise in the world

In February 2011, RIL and BP announced a 50- 50 joint venture for the sourcing andmarketing of gas production sharing contracts that RIL operates in India.

Covering 270,000 square Kms, the 23 blocks represent the largest private sectorexploration acreage in India. The blocks supply more than 30% of Indias total

consumption and 40% of the countrys output. The deal is a game changer for the

country, paving the way for more participation of international firms in Indias

upstream sector- a much needed involvement for the technological expertise they can

bring in enhancing domestic resources.

Unconventional resources such as shale gas and coal bed methane (CBM) are emergingas a strong option for increasing gas supply and the first round of CBM bidding was held

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in 2002. Currently 33 blocks are under exploration and one block is in production. Out

of 2.6 tcm (92 tcf) of potential sources, India has established 254.9 bcm (9 tcf) of

reserves within approximately five development plans.

As a result CBM could comprise 5- 10% of natural gas production. Shale gas bidding is expected to begin soon. India is increasing its re-gasified LNG from current 13 million tons/ annum to more

than 30 million tons/ annum by 2015. Approximately 8000 kms of gas pipelines are

also being constructed in order to carry gas across India, while another 5000 kms of gas

pipelines are in bidding process.

The gap between supply and demand is rapidly growing in India. Although positivesteps are being taken both by private sectors and the government, a lot more needs to

be done in order to increase domestic supply and attract international players as a

stable gas market with an assured demand.

BULLISH IN BHARAT: INTERVIEW WITH RK SINGH

When Bharat decided to get into the upstream sector, we wanted to maximize focus onthe business. Having a separate company helps us in achieving this objective. It is a

wholly owned subsidiary of BPCL but having a separate entity is an efficient way ofoperating.

We currently own 27 blocks, 9 in India and the balance overseas. Hope is that government will compensate the losses suffered by our downstream

activities due to regulated prices. There will come a time when the Government will

have to dismantle the price controls. They cannot go on subsidizing the petroleum

products.

A long term solution needs to found for consumers from the weaker sections of thesociety.

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SAGA OF INDIAN HYDROCARBONS: NM BORAH

India has 3 decades of experience in shallow offshore exploration, production, anddevelopment of crude oil and gas.

In the coming 5 years, upstream companies will face many difficult challenges. With exponential growth in exploration and production activities in recent times, there

is a growing gap between demand and supply of skilled workforce, and this is a major

challenge for the entire industry.

A skilled competent workforce is not easily available in the market. Geo political relations and government regulations are both hurdles that have to be

handled with care and understanding.

OIL POOR AND ENERGY RICH: INTERVIEW WITH AVINASH

CHANDRA

India has the 6th largest reserves of coal in the world, all of which are perfect formethane production. While we already have 18 blocks awarded for CBM production, we

still do not produce any tight gas or shale gas.

In India, up to 93% of oil production comes from young rocks, the tertiary rocks. Onaverage, 68% of the worlds oil comes from Mesozoic rocks and 30% from Proterozoic

rocks. Thus, India is grossly underexplored. We only look at young and shallow rocks, if

we go deeper then we shall find more oil.

India has better potential for shale gas production than Libya, Sudan or North America. India has yet to explore its Mesozoic and Proterozoic horizons, which is where the shale

gas potential is. The gas in those areas is part of the future India.

Indias sediments are more gas prone than oil prone. For this reason India should makea slow switch to gas based economy. CNG is used widely in large cities and its use

should be further developed in villages.

LPG cylinders are common but piped natural gas distribution would be more efficient. It is a fact that India will never be fuel self-sufficient. By 2030, India will need 14 million

barrels of oil per day at a cost of $300 billion/ year.

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THE GENTLE UNTAGLE

India has benefitted greatly from the liberalization of trade in some petroleumproducts, but has continued to uphold longstanding price controls on diesel, LPG and

kerosene, ostensibly to protect consumers from price fluctuations.

These controls compel the OMCs to sell at a centralized price and are rarely adjustedfor increases in crude costs and are a major financial burden to the state.

By forcing the OMCs to sell below market value, these subsidies have created underrecovery, a gradually increasing disparity between cost and revenues recouped at the

point of sale, which was reported at INR 1.32 trillion ($27.5 billion) in 2011.

Furthermore, foreign companies receive no compensation for accepting underrecoveries, domestic OMCs, which are recompensed in part with government bonds,

dominate the market.

Indias new oil economy is at a cross roads- on verge of regional dominance buthampered by a dependence on imports, the damaging effects of subsidies and a

weakening rupee.

These interconnected problems risk challenging the economic relevance of the hugeand pioneering refinery projects that have changed the face of the industry within the

region.

By reducing controls and liberalizing prices, the government could invest more inexploration and in domestic exploration to help reduce the dependence on imports.

Indian consumers would benefit from the competition brought in, and foreigninvestment would help reinvigorate stalled projects.

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TOTAL INDIA: INTERVIEW WITH VIJAY KUMAR

India has imposed price controls on state owned oil companies marketing LPG fordomestic use, but the price of LPG sold to commercial and industrial users is market

driven. Totals focus in India is on industrial and commercial customers who are using

LPG.

With regards to setting up downstream infrastructure for the marketing oftransportation fuels, it is not the right time for Total to enter into this business in India.

The best that we can do is develop our existing business and train the next generation

of manager to be ready when the market eventually opens up.

Currently there is a deficit of pipeline infrastructure but eventually when pipes are setup, gas will replace LPG where is easier to handle.

SHELL INDIA: INTERVIEW WITH VIKRAM MEHTA

There are 2 operating LNG terminals in India. One is a majority Shell joint venture andthe other is a government controlled entity. Domestic gas cannot meet the demands of

Indian consumers and pipeline gas from Iran and Afghanistan may take many years to

come to India. LNG will therefore increase in importance and more expensive than

domestic gas but cheaper than oil.

Hence the economic logic to buy LNG over oil will be compelling. The current capacityof our terminal is 3.5 million tons/ annum and we are in process of expanding.

India has approximately 190 million tons/ annum of refining capacity and a large partof its output is exported. To that extent, India is already a major player in refining.

Environmental standards and operating costs will determine refinery economics in the

country. The issue will be the sustainability of refineries competitiveness.

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INDIAN OIL

Moving forward IOCL shall be venturing into upstream and downstreampetrochemicals projects as well as diversification towards gas marketing and renewable

energies.

Indian Oil currently holds 11 oil and gas blocks and 2 coal bed methane blocks in India,as well as 10 blocks in Libya, Iran, Gabon, Nigeria, Timor Leste and Yemen.

IOCL has recently setup subsidiaries in the UAE, Sri Lanka, and Mauritius and is nowseeking opportunities in Africa and South East Asia.

IOCL has also signed agreements in Gas marketing for urban gas distribution. It isselling 2.3 million tons of CNG as a result of these agreements.

A 5 million TPA LNG terminal on the east coast of India for the import, storage andregasification of LNG is also on the companys trajectory.

For transporting oil and gas, IOCL is building new pipeline infrastructure such as theParadip- Haldia- Durgapur LPG pipeline and the Paradip- Raipur- Ranchi pipeline.

IOCL has also begun investing in renewable energy options such as wind, solar andnuclear power. It has, for example, developed a 21 MW wind power project in Gujarat

and has entered into an agreement with Nuclear Power Corporation of India as a foray

into a new business opportunity. IOCL is on roads to becoming a fully integrated energy company.