Reliance ready to invest in oilsands
Indian firm will 'move fast' once target found
Ashok Dutta
Calgary Herald
Thursday, July 19, 2007
Leading Indian private-sector integrated oil company and operator of the world's largest refinery, Reliance Petroleum is eyeing opportunities for multi-billion dollar investments in Alberta's oilsands, terming the province's resource the "energy of the future."
Atul Chandra, president of international operations, told the Herald in an interview from Mumbai on Wednesday the energy giant is considering several options with respect to Alberta. Among them: exploration and production of heavy oil, mining and extraction of bitumen and the construction of an upgrader to produce synthetic crude oil.
"We continue to meet people from the industry, including officials from Alberta," he said. "A delegation (from the Alberta government) visited us last year and invited us to invest in oilsands. We will look for a threshold resource of at least 500 million barrels. Any investments will have to be matched with our portfolio."
Reliance's current portfolio includes oil exploration and production rights in Oman and Yemen and 90 per cent interest in India's largest gas field. It is also the owner and operator of the 540,000-barrel-per-day (bpd) export refinery at Jamnagar in Western India. The facility is undergoing an expansion to add 580,000 bpd by December 2008.
Chandra pointed out that although no "specific" oilsands property has been identified for acquisition, Reliance will "move fast" once it has narrowed down a target.
Other international oil companies on the prowl for oilsands interests or assets include Italy's ENI, Spain's Repsol and India's state-owned Oil and Natural Gas Corp.
Jason Chance, spokesman at Alberta Energy in Edmonton, said efforts by Reliance would be yet another example of growing oil interest in Alberta.
"Foreign investors recognize we are politically stable and have a trained workforce," he said. "New investments imply potentials for new jobs, value-addition, economic benefits and royalties."
According to Chandra, access to long-term barrels of oil will be a prime driver behind investments by Indian companies in Alberta's oilsands sector.
"Globally, the total discovered oil reserves is two trillion barrels. Of this, one trillion has already been produced. Oilsands and shale constitute another seven trillion barrels-in-place and this is convertible to recoverable resources of two trillion barrels. Most of the deposits are in Alberta and it is the energy destination of the future," he pointed out.
Pauline Dingwell, Canada analyst with Edinburgh-based Wood Mackenzie, said a luring factor for Reliance will be security of long-term supplies.
"They have made no secret of it," she said. "Undeniably, Alberta has a large resource base, but rising capital costs of projects may act as a deterrent."
Admitting that spiralling project cost is an issue that Reliance will have to contend with, Chandra felt an oil price of $60 per barrel would make any investments worth the while.
"Weighted average cost of capital (WACC) will be an important issue," he said, without giving any figures. "Our aim will to be in the total value chain and not just in mining and extraction of bitumen."
WACC is defined as the expected return on capital by an investor.
Vishvjeet Kanwarpal, chief executive at New Delhi-based Asia Consulting Group, said at present the desired WACC for oil companies after Venezuela's resource nationalization drive is 25 per cent.
In Alberta, the rate of returns on projects is estimated to be 10 to 12 per cent per year over a 30-year period.
"We can either invest on our own or in a joint venture. Each partner will bring on board strengths. Upgraders are key elements in oilsands projects and we have the experience of building and operating the world's largest refinery," Chandra said.
U.S. oil giant Chevron Corp. has a five per cent interest in the Jamnagar refinery. It also has working interests in two oil sands project -- Athabasca Oil Sands Project and Syncrude.
Chandra suggested that synthetic oil produced from its oilsands operations would likely be sold to the U.S.
"Based on our product slate, if we get the desired value we may look into importing Canadian oil," he said in reply to a query if Reliance would ship oil from the western Canadian coast. "In today's world of high oil prices, it is light oil (price) that is moving up and not heavy oil. This is creating a differential of $12 to $25 per barrel. We will buy the cheapest oil and produce premium brands to be sold in Europe and the U.S."
In spite of a recent decision by the Chinese National Petroleum Corp. to exit the oilsands, Chandra replied that the door will still open for Asian companies to import western Canadian extra heavy oil.
"China or no China, we will import if the basic economics work out," he said.
Kanwarpal said that fast-growing for energy will be the deciding factor for securing foreign sources of crude.
"The Chinese dragon and the Indian elephant have varying perceptions of energy security. The former is swift and changes pace, but the latter takes time to decide. However, once the elephant takes a decision it moves along unmindful of consequences," he commented.
India's oil demand is estimated to reach 7.5 million bpd by 2025, from 2.2 million bpd today.
adutta@theherald.canwest.com
© The Calgary Herald 2007
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