BG Group Realigning India Business
Late last year, when energy major British Gas's Indian arm, BG India, announced plans to exit from two of its Indian energy assets, the industry wondered if it was a fullstop to BG's India plans.
BG is selling 65.12 per cent stake in Gujarat Gas Company (GGCL), India's largest private sector natural gas distribution company in terms of sales volume. Also, British Gas Exploration and Production India (BGEPIL) sold - 25 per cent stake in the Mahanadi deep water block MN-DWN-2002/2; 45 per cent in KG OSN 2004/1 block and a 30 per cent interest in KG 98/4 bloc; it held in partnership with state-run Oil and Natural Gas Corporation (ONGC). Now, ONGC holds the entire stake in these blocks.
Despite these exit decisions, BG says it will continue evaluating expansion opportunities in India. "We believe India is a fast growing and dynamic gas market and we continually evaluate opportunities to expand our business in India," the company said.
Analysts say sale of assets is a natural process of asset rationalisation for a company like BG Group. BG requires $9 billion for its exploration and production businesses in Brazil and Australia. "From a group perspective, these are very small businesses for BG. It is rationalising its global portfolio. Selling stake in Gujarat Gas is part of this process, as it needs money to invest in E & P businesses in other parts of the world. Besides, as a group policy, it has realigned focus on upstream and LNG businesses,&" said an analyst tracking BG Group.
This month, BG Group, in its annual strategy update alongside fourth quarter and full year 2011 results, said it is planning to release some $5 billion over the next one to two years, with the continuing execution of its portfolio rationalisation programme.
BG Group's chief executive Sir Frank Chapman said: "The outlook for global gas and LNG demand is strong. BG Group is well set to capitalise on these opportunities and is making good progress with delivering its plans.&"
The company has raised its LNG profit guidance for 2012 by over 30 per cent to between $2.6-$2.8 billion. "Not only is our LNG supply set to exceed our 2015 target of 20 million tonnes per annum (mtpa), but we believe that a BG Group supply portfolio of 30 mtpa by 2020, is now within reach. Our LNG business is set fair with the prospect of excellent profit momentum for many years,&" added Chapman.
In India, BG, however, may not look at setting up an LNG terminal but only at supplying LNG to domestic players, said a person in know of BG operations. In 2009, BG India Energy Solutions Private Limited (BGIES), a wholly owned subsidiary of BG Group, commenced midstream gas marketing operations in India. It has approval from the Foreign Investment Promotion Board of the government of India to undertake wholesale marketing and distribution of natural gas from domestic sources as well as LNG.
More recently, BG Group signed a heads of agreement (HoA) with Gujarat State Petroleum Corporation (GSPC) for the long-term supply of up to 2.5 million tonne per annum of LNG. The HoA sets out the basis on which BG Group will sell LNG to GSPC for up to a 20-year period, beginning 2014. The LNG will be sourced from the Group's current and future global supply portfolio.
On the gas retailing side, BG began its operations in 1995 through Mahanagar Gas Ltd (MGL), a Mumbai-based gas distribution company where BG Group along with GAIL India, holds 49.75 per cent stake with the remaining held by the government of Maharashtra. It later acquired majority stake in GGCL in 1997 for Rs 170 crore. Not only it is not expanding this portfolio, it wants to exit both these operations. Today, by selling its stake in GGCL, it plans to realise Rs 4,500 crore.
While rumours are rife that BG would sell its stake in MGL too, analysts say this may happen at a later stage. "MGL has state-run companies as partners, so the process will be more long drawn. Considering GGCL is listed, it is easier to sell one's stake," said a Gurgaon-based analyst.
Among its exploration and production assets, BG still holds the operatorship of Panna/Mukta and Tapti with 30 per cent stake. ONGC and Reliance Industries hold 40 per cent and 30 per cent, respectively.
Analysts say BG sold its stake in three blocks to ONGC as the economics of the block did not fit into its overall plans. "Each company has its threshold and it was not falling in that range for BG. For ONGC the economics is a lot different," said an analyst.
Source: Business Standard