By Neil Chatterjee and Nidhi Verma
NEW DELHI (Reuters) - State-run Indian Oil Corp. (IOC) is looking to buy an exploration firm to feed its refining capacity as it expects strong refining margins and domestic fuel demand growth this year, its chairman said on Thursday.
IOC (IOC.BO: Quote, Profile, Research, Stock Buzz) aims to produce oil and gas from its own resources totaling 5 million tonnes of oil equivalent a year by 2012 as it expands its refining capacity, and will increase crude imports to 60 million tonnes from around 40 million now.
"Obviously if you have to have equity oil of up to 5 million tonnes in next three to five year, we must have to look at buying some producing assets," IOC chairman and managing director, S. Behuria, told the Reuters Global Energy Summit.
He said IOC was re-examining its goal because of the time required between getting an exploration block and producing oil.
In the past IOC had attempted to acquire French firm Maurel & Prom (MAUP.PA: Quote, Profile, Research, Stock Buzz) and Canadian firm Niko Resources' (NKO.TO: Quote, Profile, Research, Stock Buzz) assets in India and Bangladesh. Its latest effort was for Burren Energy's BUR.L Congo assets. But nothing had materialized.
"Unfortunately at the time when we are active and aggressive the price of crude oil is very high, so everything has to be at right price. We have to do a very elaborate due diligence and negotiation...in fact we have higher hurdle rate for investment in exploration and production than a normal domestic investment because of the risk associated," he said.
The need to buy an exploration company also stems from Libya's decision in one licensing round to bar IOC for lacking experience in exploration and operatorship.
Behuria did not specify any timeframe and budget for buying overseas exploration assets.
"Everything you do does not mean success. If you do one out of 100 I think it is a great thing. Every discussion cannot lead to an acquisition," he said.
IOC, which recently gained a license to build a 300,000 barrels per day refinery in Turkey, is not looking to buy refineries abroad as it has committed over 500 billion Indian rupees ($12.34 billion) of investment in India over the next five years, he said.
Behuria expects Asian refining margins to average around $6 a barrel in the next two to three quarters. But he said that if crude prices fall to $60 a barrel, margins will come down.
Behuria sees India's annual fuel demand growing at 5-6 percent with Asia's third largest economy growing at over 9 percent. He expect auto fuel to maintain 5-6 percent growth.
In the 2006-07 fiscal year, domestic oil sales grew 5.9 percent. nDEL51460
HIGHER EXPORTS
With the commissioning of its 300,000 bpd Paradip refinery on the east coast, Behuria sees higher exports, particularly of diesel and petrol, to markets such as China and Korea. The company plans to use naphtha for its petrochemical business. Continued...
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