Thursday, 26 September 2013

OIL and GAS-Poised for a strong Show

So worries are not down for india. But as in the past, I am of the firm view that our problems are strategic not demographic or geographic. Take a view, more than 50% of us works around agriculture yet total contribution of the agriculture in GDP is just 17%. These 50% still lives a poor life…they are not the ones creating huge unmet demand for gold and oil. Balance 50% are those having huge resources , almost immune to any rise in the prices of gold and oil. But then what is the big deal? Why such a mess?

Because this leaves the scope for our Govt to interfere, to announce freebies for these poor peoples to earn their votes. Politicians need these poor people to come into power. So they rob of rich people big time and distribute a smaller part in such a way to these poor that they remain beggars forever. Why our govt went mad to curb the gold demand in order to reduce Current account deficit although there is still a debate whether Gold import is a current or capital account item? What about stepping up to make people use less oil? Because our Central and state Govt earns around 250000-300000 crores due to various taxes from oil gas sector.

Govt budget for fertilizer subsidy is around 100000 crores but sad news is we import maximum of our fertilizer needs. But poor management of the fertilizer and agriculture results only in wastages of huge resource. Bulk of the fertilizer is used for producing rice/wheat which our selfish Govt needs for Public distribution programs…again for votes.
Govt regulation results in under investment in fertilizer sector. We missed the bus in textile exports which can be a huge foreign exchange earner. Even Bangladesh surpassed us. We are doing the same in leather industry in spite of having highest number of livestock in the world. Same is the case for Marine exports.

Ok, Leave aside let’s come back to our favorite oil gas sector.  This is the one area which if our govt can tackle, can bring huge gains and recent policy action indicates that our govt is willing to go straight. Doubling of gas prices was the first one. Time bound deregulation of diesel was the next.  50% of our sedimentary basins are poorly explored /unexplored.

We dig around 200 wells a year to look for oil gas, USA does 2000 wells. Huge discoveries in last decade put india in the league of brazil/Australia and Israel. Even Pakistan has found huge reserve of oil gas near Barmer where cairn discovered. Focus energy has also found huge reserves of Gas around jaisalmer which can transform the area into an energy zone…gas based power plants for 1500-2000 MW can be set up. State owned GSPC is about to start producing gas from Deen Dyal block at KG-6. As per reports, east india has huge potential to be the centre of india’s oil gas independence. China’s interest in Arunachal Pradesh reaffirms the notion.

Also huge oil finds world over in recent times will surely put downward pressure on oil prices which is great news for india.
Hence it is time to pick oil gas stocks with both hands. I have bought shares in all of the oil gas producers. But my favorites are reliance, cairn india, Oil India and ONGC. BPCL is one of the best buys due to its portfolio of Oil gas assets. ONGC paid around 3 Billions $ for Videocon’s 10% share in Andarko oil block in brazil. BPCL holds 10% in the same, but total market value of BPCL is $ 3Bn, means we are getting its other oil gas assets all over the world, its huge refinery base and retail petrol pumps for free.

I am also very optimistic about Gas transportation companies…as they will benefit from fall in Gas prices globally. My old theory that users of the products are sometimes better than producers of the products, holds the premise in this case of gas transportation business. Gujarat State petronet is one of the same, it gets the gas from its parent GSPC. It is building around 12000 Km of nationwide gas piping infrastructure. I am sure india will announce huge gas discoveries within one or two years, particularly from the house of RIL which will benefit these companies and if we fails then these will import the same for us. I have picked GSPL at 50/- . Gujarat Gas (in city gas distribution, another area with huge scope) is also good (fallen from 400 to 200).GAIL and indraprastha gas are also good.

But my picks are RIL, cairn india, Oil India, BPCL, ONGC, GSPL, Gujarat Gas . 
Also world is moving towards finding oil in the deep corners of Sea, into the depths which were only a dream a decade ago. It is driving up the prices of Rigs. Our Aban offshore is at 215 all the way from 5000/- , battling with huge debts. But it can be a good pick at the current price only thing to see is its debt reduction plans which is critical for it to acquire new deep rig technology. i'll come back with detail study.


No comments:

Post a Comment