BPCL to stay the course in overseas explorations

The prolonged volatility in global crude oil prices is not going to slow down Bharat Petroleum’s oil exploration ventures overseas, S Varadarajan, Chairman and Managing Director, said at a press conference here after the company’s annual shareholder meeting on Wednesday.

BPCL’s ambitious plans in upstream exploration and production are being undertaken through its wholly-owned subsidiary Bharat PetroResources Ltd (BPRL), which currently has participating interest in 17 exploration blocks, of which six are in Brazil.

But oil prices have oscillated wildly in the past year, from $115-a-barrel peak in June 2014 to $45 a barrel in January 2015. However, Varadarajan said: “We are not worried about returns on upstream now. Oil and natural gas prices will not remain at present levels and our projects will take another four years before they start producing.”

In fact, BPCL has an ambitious capital expenditure roadmap laid out for the next five years. The public sector oil refiner and marketer plans to spend Rs.1 lakh crore from 2016 to 2021 under Project Sankalp, of which Rs.25,000 crore is earmarked for the exploration business. The chunk of the proposed investment – up to Rs.40,000 crore – will go into its core refining business. The company is already on track to ramping up its refining capacity to 50 million tonnes a year by 2020-21, a 60 per cent jump from its present level of 31 mt.

Expansion at the Kochi refinery from the current 9.5 mt to 15.5 mt is expected to be complete by May 2016, the refinery’s Executive Director Prasad K Panicker said. The Kochi refinery will also be the site where BPCL ventures into producing niche petrochemicals like acrylic acid, acrylates and oxo alcohols at an estimated capital cost of Rs.4,588 crore.

The state-owned company also plans to expand its fuel marketing business abroad, particularly in Nepal, Bangladesh and countries in Africa. Varadarajan said that this ties in with the Union Government’s Look East policy and that BPCL is currently studying the project’s viability.

The major source of funds for the massive expansion plans will come from raising debt, P Balasubramanian, Director – Finance, said. The company’s ratio of debt to equity will more than double from the current 0.6 to 1.5 over the five-year plan period, but Balasubramanian believes that once these assets start generating revenue, the debt-equity measure will return to current levels.

However, raising equity is on the cards as well. The six-million tonne refinery in Bina, MP, a joint venture with Oman Oil, has always held the possibility of being spun off and listed as a separate entity. Varadarajan said raising equity through the Bina refinery is still an option for the company. “The initial results at Bina had not been very encouraging. But the refinery turned profitable in the first quarter this year. If we can continue with Bina’s expansion (to 7.8 mtpa by 2018), a 24 per cent strategic sale to the public is possible. We will take a call on this next fiscal.”