FROM THE CHAIRMAN
IT WAS A PARTICULARLY DIFFICULT YEAR FOR THE COMPANY AS REVENUES DECLINED AND WE POSTED
A NET LOSS AFTER 10 YEARS OF PROFITABLE OPERATIONS.
However, there was a silver lining in the Company`s performance as it stepped beyond
India for the first time following an international contract from Jindal Petroleum
Operating Company LLC (affiliate of Jindal Petroleum Limited) for onshore 2D seismic data
acquisition in Blocks IX and X in Georgia. This project, although modest in value terms,
opened our access to a large global market from where we expect to receive an increasing
number of contracts over the foreseeable future.
Despite challenging conditions, we received new orders valued at Rs. 368 million in
2010-11, against Rs. 250 million in 2009-10. The unexecuted order book position of Rs. 284
million as on March 31, 2011 (excluding an overseas assignment of USD7.5 million) provided
us with a strong start for 2011-12.
Global E&P spending in 2011 is expected to surpass half a trillion dollars, rising
16% to USD529 billion against USD458 billion in 2010 (Source: Barclays Capital). The
surge is expected to be driven by incremental spending in North America (16.2%) and the
rest of the world (15.5%).
Over the medium-term: Overall crude and natural gas liquids (NGLs) capacity is expected
to increase by only 0.5 mbpd every year over the next two years to 94.3 mbpd in CY12 (E).
Most of the increase in crude and liquid capacity is expected to come from OPEC (NGLs that
rise by 0.6 mbpd every year). Crude capacity in OPEC and non-OPEC countries is expected to
remain flat during the period.
Slower increase in crude and liquid supplies over CY10-12 (0.5 mbpd/year) compared with
demand increase (1.2 mbpd/year) will lead to an increased dependence on OPEC crude. OPEC
spare capacity is likely to
decline CY11 onwards to less than 5% of the total crude demand in CY12 (E). As spare
capacity heads towards 5% of global demand or 4.5 mbpd, crude prices are expected to turn
Besides, finding, development and production costs are expected to increase globally.
Consequently, average crude oil prices are expected to consistently cross USD100 per
barrel by 2013, making it lucrative for additional investments in the E&P space.
E&P activities in India
In the Indian hydrocarbon chain, oil and gas production is expected to grow
aggressively in 5-10 years. The success of the New Exploration Licensing Policy (NELP) is
reflected in the discovery of world-class hydrocarbon assets like the KG Basin. The
discovery of Mangala oil field (in Rajasthan by Cairn India) was positioned as India`s
biggest after ONGC`s Mumbai High discovery (1981). Despite this success, India will still
need to import about 70% of its 3.2 mbpd oil requirement. We expect India`s E&P
investments to continue to be more focused towards garnering oil producing assets.
Increasing oil exploration investments
To achieve energy security, the Indian government is encouraging investments in the oil
sector for the following reasons:
Ballooning subsidy bill: Between 2000-01 and 2008-09, India`s oil bill grew
eightfold and the government incurred a subsidy of USD18 billion for the supply of
petroleum products. To reduce this burden, the government announced a number of favourable
policies to attract investments.
Macro perspective: Historically, India`s energy growth to GDP growth ratio was 0.7.
With a GDP growth target of 9%+, India`s energy demand is likely to grow at about 6%
(correlation of 0.7). A decline in oil demand in major developed countries could see
India`s share of global energy consumption rising to 5% (4.2% in 2009), warranting an
increased investment in finding additional oil sources.
Global share: Despite one of the biggest gas discoveries at KG D6, India`s global
gas reserve share stands at an insignificant 0.6%.
Opportunities in unconventional sources
Coal bed methane gas: India is the world`s fourth-largest coal producer with the
third-largest proven coal reserves. With about 4.6 TCM of CBM resources, the country has
significant prospects for the commercial recovery of CBM. To exploit India`s vast coal
reserves and the methane gas trapped in coal seams, the government formulated a policy for
exploiting Coal Bed Methane. Proven CBM reserves in India are equivalent to the oil and
natural gas reserves in India. Up till 2010, 31 CBM blocks were awarded over four rounds
of CBM bidding.
Shale gas: Prospects of large shale deposits exist across the Cambay basin,
Assam-Arakan basin, KG basin and Cauvery basin. The government plans to launch the first
round of shale gas bidding. In anticipation of this opportunity, some major players have
taken important initiatives to establish a presence in this space. Reliance Industries
acquired stakes in Marcellus shale and Eagle Ford acreage in the US while ONGC is carrying
out a pilot project in the Damodar basin, a first in India. If large resource bases are
established, it could boost India`s energy self-sufficiency.
Our strategic blueprint
Alphageo readied itself for a dynamic industry environment through various initiatives:
We right-sized our balance sheet through debt reduction.
We focused on capability strengthening through progressive investments in equipment,
cost review, financial discipline and enhanced efficiency.
We bid for international projects across global exploration regions and are actively
viewing the African market.
Message to shareholders
Prospects appear promising as the rise in the price of oil enhanced industry cash flows
leading to additional prospecting investments. Alphageo will reinforce its strengths, grow
its competitive edge and contribute to the country`s energy security.
Z. P. Marshall