OIL INDIA LTD (OIL) IPO - SUBSCRIBING ADVISED
Issue Opens 7 Sep 2009 - Closes 10 Sep 2009
Price Band Rs 950 - Rs 1050
Issue Size Rs 2512.7 Cr - Rs 2777.3 Cr
About the Company:-
OIL is the second largest oil and gas company in India as measured by total proved plus probable oil and natural gas reserves and production (Source:DGH). It is primarily engaged in the exploration, development, production and transportation of crude oil and natural gas onshore in India. It is also present internationally through the exploration of crude oil and natural gas in Gabon, Iran, Libya and Nigeria and was recently awarded exploration blocks in Yemen as part of a consortium. OIL primarily conducts its activities with respect to its domestic producing blocks and exploration activities in its nomination blocks independently. OIL conducts exploration activity, both in India and overseas, through joint venture arrangements and PSCs (production sharing contract) with other oil companies.
Important Licenses:-
As of June 30, 2009, OIL holds PELs (Petroleum Exploratory License) as operator covering a total area of approximately 26,660 square kilometers, of which 21,293 square kilometers were acquired through the NELP (New Exploration Licensing Policy) bidding process and the remaining on a nomination basis. OIL has obtained participating interests in 41,273 square kilometers of exploration acreages overseas in Egypt, Gabon, Iran, Libya, Nigeria, Timor Leste and Yemen. It also has interests in downstream activities through a 26% equity stake in NRL (Numaligarh Refinery Ltd) and a 10% equity stake in BCPL (Brahmaputra Cracker and Polymer Ltd). OIL holds a 10% equity stake in a 741 kilometer pipeline construction project in Sudan that was completed in 2005.
Objective of the Issue:-
The objects of the Issue are to achieve the benefits of listing and to fund requirements for fiscal 2010 and fiscal 2011:
- Towards exploration and appraisal activities
- Development activities in producing fields
- Purchase of capital equipments and contracts for facilities
- Diversification of existing business in downstream activities
Outlook for stock:-
OIL has a good track record in exploration and addition of reserves, it has sizeable domestic and international acreage in the form of Petroleum Exploratory Licenses and in addition to that, OIL has immense operating experience of nearly 5 decades. As of March 2009, OIL had a cash and cash equivalent of Rs. 6,070 cr. This coupled with OIL’s cash generating ability could enable it to pursue its aggressive capital expenditure plans of around Rs. 13,000 cr for the Eleventh 5-year Plan period. Only size of the company doesn’t matter and the costs involved and the success rate of discovering oil is also important for an E&P company - OIL is better in terms of operating and technical efficiencies when compared to a company 10 times its size ONGC. OIL has success rate of 63% Vs ONGC's 36%, its finding cost is $1.1/barrel compared to $2.6 for ONGC. OIL is offering shares at an attractive valuation compared to its peers like ONGC, CAIRN and most other international players. Higher production of Oil and Gas going forward, growing accretion to acreage, lower subsidy burden due to soft crude oil prices, high success ratio and operational efficiency, greater use of better technology, upsides from pipeline and downstream business, upside from likely revision in gas APM prices, better financial and return ratios – all this could mean that the difference in valuation attracted by ONGC and Oil could narrow going forward despite a difference in their sizes. The only major risk is of continued softness/fall in crude oil/gas prices. The stock can be a good investment from mid-to-long term view, SUBSCRIBE recommended.
Today, 77 per cent of the gas produced in the country is sold under the administered price. The Government regulates prices of gas produced from fields awarded before New Exploration Licensing Policy regime. The Petroleum Ministry is considering a proposal to increase the price of natural gas sold under a regulated regime to $2.6 for every million British thermal unit (mBtu) from $1.8/mBtu, currently. ONGC and Oil India Ltd (OIL) sell gas at a Government controlled price from blocks awarded to them on a nomination basis. http://www.thehindubusinessline.com/2009/09/05/stories/2009090551261500.htm
