If you have been following the changes in policy and the recent success in oil and gas exploration in some non traditional regions, then India may have shown up on your radar.
The KG basin off India’s western coast, is home to the D6 mega gas fields owned by Reliance Industries (http://finance.yahoo.com/q?s=RELIANCE.NS) and Niko Resouces (http://finance.yahoo.com/q?s=NKO.TO).
Cairn India (http://finance.yahoo.com/q?s=CAIRN.BO) meanwhile is in the middle of buy out/merger talks with Vedanta (http://finance.yahoo.com/q?s=VED.L). Cairn India’s crown jewels are in the onshore eastern state of Rajasthan.
For an energy deficient nation like India, growing at a rapid pace, both finds are a heavenly gift.
So where might be the next Niko Resources?
I would like to point to GeoGlobal (http://finance.yahoo.com/q?s=GGR) resources as a company that could be the next NIKO if it manages to overcome a couple of hurdles.
What I like about GGR:
1. Its listed on the Amex in the US and hence overseas (non Indian residents can buy in). Most Indian stocks are off limits to non Indians as only a handful of Indian companies have ADRs and GDRs.
2. GGR has a 5% stake in the DeenDayal block in the KG basin. I do not know much about oil & gas exploration, but know that you are likely to find some where other folks have discovered hydrocarbon deposits.
3. GSPC as a partner (Gujarat State Petroleum Corporation Ltd.) a state run oil firm (owned by the state of Gujarat in India) owns 80% of the Deendayal block. GSPC is not public yet but they have tried to go public in the past and are at it again. Their draft prospectus can be found at http://www.sebi.gov.in/dp/gspcdraft.pdf
Having a strong Indian partner is a double edged sword (more about that later).
4. The DeenDayal Asset
A few years ago, the Deendayal deposit was touted as holding 20 tcf (trillion cucbic feet) of natural gas. However, the DGH (Directorate General Hydrocarbons in India) has only notified 2 tcf and has recently approved a field development plan of $ 1.8 billion - http://www.istockanalyst.com/article/viewiStockNews/articleid/4387656
5. Other Blocks
GGR has exploration blocks in 4 key basins in India – KG basin, Cambay Basin (in Gujarat), Deccan Basin (Southern India) and Rajasthan Basin (where Cairn India found oil). More details can be found at http://www.geoglobal.com/default.aspx?id=39
GSPC has reportedly found gas in large quantities in the Cambay Basin too http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-strikes-huge-gas-reserve-in-Cambay-basin/articleshow/6230713.cms but extracting the gas will be a different story.
Things to Watch Out For:
1. The GSPC and GGR dispute
Page 19 of the GSPC draft prospectus http://www.sebi.gov.in/dp/gspcdraft.pdf has information on the dispute with GGR. The draft prospectus does not mention that GSPC may have not shared some updates about the fields in question since the dispute took a serious turn. http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-GeoGlobal-may-attempt-to-settle-gas-dispute/articleshow/6021669.cms
Efforts have been made to resolve the dispute but so far, nothing has been reported.
2. Long Gestation Period
Assuming that GSPC gets going peak output from Deendayal is expected around 2015-2016.
If everything works out, only a patient investor will be rewarded handsomely.
Recommendation:
If you believe that India’s initial success in the E&P can be replicated then you could consider a small, long term investment in GGR.
Wednesday, August 25, 2010
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