IOC plans to get into oil exploration, sets up SPV
New Delhi   10-Jun-2011

IndianOil (IOC) plans to get into exploration by setting up a special purpose vehicle (SPV) for the upstream business. IOC targets more revenue from gas and petrochemical business that will give some comfort from increasing under-recovery on fuel sales.

“We must grow into upstream. We have to first build up expertise in the exploration and we are looking at it at present. Once we have the expertise and the competence, then the company will be in a position to participate in the acreages, RS Butola, chairman of IOC, said.

The chairman said the company is reviewing the benefits and disadvantages of having an upstream wing. “Over the next two-three months, we will have clarity,” he said.

IOC will hire experts into its upstream vertical. “We will be recruiting people who are experts in the exploration and production business. We will also be training people, who have the necessary educational background. We can also hire some expats on contract basis,” Butola explained.

IOC is strategically planning to diversify into other verticals in the hydrocarbon chain in order to garner additional revenues. The company’s core business, refining and marketing, is under stress on losses incurred for selling fuel below market cost. The company’s gas business will expand by many-folds in the next seven years, Butola said.

Butola didn’t divulge the exact figures for increase in revenue generation from gas business. He said that IOC will market nearly 12.5 mt of natural gas in next seven years.

The additional volumes will be marketed from Petronet’s new 5 mt LNG terminal in Kochi. In addition, IOC is looking to set up a LNG terminal in Ennore, in suburban Chennai.

At present, IOC is losing Rs 256 crore in selling diesel, cooking gas and kerosene below market cost. When asked how would IOC prevent under-recoveries affecting its balance sheet, Butola said government is aware of the situation. “We are asking government for a transparent subsidy mechanism that will help IOC to cut down losses,” he added.