 "Indian cos are looking beyond ME, CIS countries to meet energy needs: Thomas Milroy")
BMO Capital Markets, a Canadian bank with a market capitalisation of over $40 billion, is looking to advise Indian companies on oil & gas transactions, with a specific focus on North America. Thomas V Milroy, Chief Executive Officer and Deputy Chairman of BMO says Indian companies are now more open to meeting its energy needs from beyond the Middle East or former Soviet Republics (in the form of the Commonwealth of Independent States-CIS). Edited Excerpts from an interview with Sachin P Mampatta:
What’s the case for Indian companies investing in North America to meet their energy needs?
There is an interesting synergy between India and North America right now because North America in total is becoming energy rich. For a while it was a case of the Canadian resource base being in an oversupply situation but not so much the United States. Now, with what has happened in the shale area, as a geography this is very much an energy rich environment. So those resources are very attractive if you are in a growth market like India.
How do you explain the focus on Gulf and CIS countries?
For a long time, India was more comfortable functioning on a government-to-government basis. Wherever the governments had very strong linkages, many of the public sector companies went and made acquisitions there or would end up having interests there. So they went to the Middle-East, where a lot of countries became key supply-sources to India. Russia had strong relations as well. So they went to the CIS countries as a result and I think we had a number of acquisitions there.
So North America is next?
Relationships with North American countries are warming up in the last five years. Secondly, you want to have a diversified portfolio. In some of the jurisdictions, Indian companies are already in, you do run some sort of country–risk. So think of this. If you have a portfolio, would you like some parts of your portfolio in stable jurisdictions where you could potentially look to evolve and get supply out there?
What are the resources that Indian companies could look to tap?
If you think about Canada for a minute, the oil sands is one of the largest reservoirs where you can have huge reserves of oil. It makes sense for Indian companies to look hard at it. Shale gas is interesting because many Indian companies want to understand how that business works.
So if the government plays a big role, could we be looking at a lot more public sector companies eyeing assets?
If you look at what some of the larger public sector companies are telling you, in terms of their internal targets, they are quite significant. In terms of the amount of resources that they need to add to meet their energy security needs in this country. Those are pretty ambitious targets. Those guys have to go out and acquire resources.
On a more topical note, how would you expect recent announcements of tapering to impact capital-flows?
I think we all in freeze mode when they announce that they are going to reduce it and then we digest it and the market goes on. My view is that the Fed is doing a pretty decent job in communicating what they are doing, and doing it in a moderate thoughtful way.
It came at an awkward moment when the market was upset about emerging markets growth generally but I think the Fed is consistently delivering on what it said it is going to do. You have these moments of upset, but over the long term it is going to be positive. Certainly, it is positive in terms of the North American economy. It will be more generally positive as it stabilises. You cannot carry on in a situation where they are forever providing liquidity from the central bank to the market place.
Do you expect emerging market appetite to be affected?
The market acts in the moment. In the long-term, the appetite will continue to be there. It’s a bit of a ‘risk-on/risk-off ‘ type of marketplace. It just happened to be that in this moment it was off anyway. I actually think the Fed tapering plays into it, but it’s not really the cause for it. People are just questioning what those growth rates were going to be, how sustainable they were going to be.
What’s the case for Indian companies investing in North America to meet their energy needs?
There is an interesting synergy between India and North America right now because North America in total is becoming energy rich. For a while it was a case of the Canadian resource base being in an oversupply situation but not so much the United States. Now, with what has happened in the shale area, as a geography this is very much an energy rich environment. So those resources are very attractive if you are in a growth market like India.
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We think there will be M&A activity in and around this space as well if people look at solving their needs outside of India.
How do you explain the focus on Gulf and CIS countries?
For a long time, India was more comfortable functioning on a government-to-government basis. Wherever the governments had very strong linkages, many of the public sector companies went and made acquisitions there or would end up having interests there. So they went to the Middle-East, where a lot of countries became key supply-sources to India. Russia had strong relations as well. So they went to the CIS countries as a result and I think we had a number of acquisitions there.
So North America is next?
Relationships with North American countries are warming up in the last five years. Secondly, you want to have a diversified portfolio. In some of the jurisdictions, Indian companies are already in, you do run some sort of country–risk. So think of this. If you have a portfolio, would you like some parts of your portfolio in stable jurisdictions where you could potentially look to evolve and get supply out there?
What are the resources that Indian companies could look to tap?
If you think about Canada for a minute, the oil sands is one of the largest reservoirs where you can have huge reserves of oil. It makes sense for Indian companies to look hard at it. Shale gas is interesting because many Indian companies want to understand how that business works.
So if the government plays a big role, could we be looking at a lot more public sector companies eyeing assets?
If you look at what some of the larger public sector companies are telling you, in terms of their internal targets, they are quite significant. In terms of the amount of resources that they need to add to meet their energy security needs in this country. Those are pretty ambitious targets. Those guys have to go out and acquire resources.
On a more topical note, how would you expect recent announcements of tapering to impact capital-flows?
I think we all in freeze mode when they announce that they are going to reduce it and then we digest it and the market goes on. My view is that the Fed is doing a pretty decent job in communicating what they are doing, and doing it in a moderate thoughtful way.
It came at an awkward moment when the market was upset about emerging markets growth generally but I think the Fed is consistently delivering on what it said it is going to do. You have these moments of upset, but over the long term it is going to be positive. Certainly, it is positive in terms of the North American economy. It will be more generally positive as it stabilises. You cannot carry on in a situation where they are forever providing liquidity from the central bank to the market place.
Do you expect emerging market appetite to be affected?
The market acts in the moment. In the long-term, the appetite will continue to be there. It’s a bit of a ‘risk-on/risk-off ‘ type of marketplace. It just happened to be that in this moment it was off anyway. I actually think the Fed tapering plays into it, but it’s not really the cause for it. People are just questioning what those growth rates were going to be, how sustainable they were going to be.