Essar Global to spend $2b on oil fields

Essar Global Ltd, which has interests in energy, steel and telecommunications, plans to spend a record $2 billion (about Rs 8,000 crore) on developing oil and gas fields in India, Myanmar and Nigeria to benefit from high fuel prices.

The Mumbai-based group will use about $200 million (about Rs 800 crore) of its own cash and borrow the rest for the three-year spending plan, Shishir Agrawal, chief executive officer of Essar Exploration & Production Ltd., said in an interview yesterday. Output from fields in India may be leveraged to raise funds.

An almost threefold increase in crude oil prices in five years makes it attractive for companies, including Reliance Industries Ltd and Malaysia's Petroliam Nasional Bhd, to buy and develop energy assets overseas.

Essar is looking to bid in Africa, Central Asia, Southeast Asia and India, Agrawal said.

"We want to grow in the exploration and production business," Prashant Ruia, Essar group's director, had said in a separate interview in Mumbai yesterday. "We want to grow by taking acreages in India and overseas. We may have partners in developing some areas."

Crude oil futures in New York have gained 34 per cent in a year and reached a record $83.90 a barrel on September 20, the highest since the contract was introduced in 1983. Crude for November delivery was at $79.84 in London this morning.

Developing two fields that Essar acquired in Myanmar in 2005 may cost as much as $1 billion (about Rs 4,000 crore). Another $500 million (about Rs 2,000 crore) is needed for the Ratna fields, off India's west coast, Agrawal said. At least $60 million (Rs 240 crore) may be spent on surveying an area in Nigeria, he said.

The overseas fields will help secure crude oil supplies for Essar Oil Ltd's refinery in Gujarat and natural gas to generate power for Essar Group's steel plants in India and Canada.

"The group will have a hedge," Agrawal said. "Even if we don't import it for our own consumption, we can swap" cargoes with other producers, he said. "Our energy requirement is very high and growing."

Essar Oil shares closed at Rs 61 on the Bombay Stock Exchange today, a touch higher from its previous close of Rs 60.25.

Essar Oil, India's newest refiner, started its plant in Vadinar last November and expects production to reach the full capacity of 10.5 million metric tonnes, or 2,10,000 barrels a day, this quarter, Ruia said.

The refiner on August 31 sought shareholder approval to raise $750 million (about Rs 3,000 crore) by selling securities overseas to expand the plant's capacity to 16 million tonnes a year. Ruia said the details of the expansion and funding are still to be worked out.

Essar Global, which owns India's third-biggest steelmaker, plans to spend about $6 billion (about Rs 24,000 crore) to boost production more than fivefold by 2012.

Output will rise to as much as 25 million tonnes a year, said Ruia. Essar Global will increase annual output at its Canadian unit, Algoma Steel Inc, to four million tonnes and is also building a 2.5 million-ton-a-year plant in Trinidad and Tobago, he said.

"It makes sense for the company, whose oil requirement is growing, to have their own supplies," said K K Mital, who helps manage Rs 150 crore (about $37 million) at Escorts Asset Management in New Delhi. "It's a backward integration."