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BPCL, HPCL keen on buying crude from Cairn India

LiveMint logoLiveMint 05-06-2014 Promit Mukherjee

Mumbai: State-owned Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) have shown interest in buying crude oil from Cairn India Ltd.

Cairn sells crude only to two Gujarat-based private refiners —Reliance Industries Ltd in Jamnagar and Essar Oil Ltd in Vadinar. A 590km pipeline moves crude oil from Cairn’s Barmer fields in Rajasthan to Salaya in Jamnagar district.

With a new 79km pipeline connecting Salaya to a terminal in the Arabian Sea close to commissioning, Cairn is seeking new customers to supply crude through the sea route.

Once the pipeline from Cairn’s Barmer field in Rajasthan reaches the coastal terminal in Gujarat, these state-owned firms could source crude from it. Selling to the state-run marketers could help Cairn potentially improve its earnings over time.

However, both HPCL and BPCL are concerned about the quality of Cairn’s crude and difficulties in transporting it.

“We have shown interest in Cairn’s crude for our Vizag refinery, but we want it at a delivered price, not including transport costs,” said B.K. Namdeo, director, refineries, at HPCL.

HPCL may buy only up to 30,000 tonnes from Cairn, Namdeo said. The company has an annual requirement of 15 million tonnes (mt), of which 10 mt is imported. Cairn produces close to 86 mt of crude every year.

HPCL and BPCL share a undersea pipeline to bring imported crude to their refineries in Mumbai, said S. Sunderajan, executive director at BPCL’s Mumbai refinery. This pipeline could be used to transport crude oil from Cairn, provided it can support the quality.

A Cairn official confirmed that HPCL and BPCL have shown interest in testing its crude oil, adding that Mangalore Refinery and Petrochemicals Ltd and Indian Oil Corp. Ltd’s Paradip refinery could also use it.

Having more customers will help Cairn get better valuations for its product. “The average realization for Rajasthan crude during 2013-14 was $95.3 per barrel,” said Cairn chief technology officer Sunil Bharati. “We believe that the market value of our crude is higher than what is being realized now. If we are allowed to export, the price would be around $3-5 per barrel higher.”

The firm had sought permission to export to East and South-east Asian markets but the government has not accepted the request so far. If it is not allowed to export, the firm will tap more domestic customers, Bharati said.

Cairn may not be able to negotiate for better realization with HPCL and BPCL, according to Dhaval Joshi, analyst with brokerage firm Emkay Global Financial Services.

“Supplying to these companies is like supplying to just one new customer, which, in this case, is the Indian government,” he said.

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