July 03, 2008

CALGARY — In its race to secure its energy supply, India is taking a new look at the oil sands.
State-owned Indian energy companies are looking to invest at least $2.5-billion (U.S.) and as much as $10-billion in Alberta's oil sands as part of a national strategy aimed at fuelling India's fast-growing and energy-hungry economy, according to officials who spoke yesterday at the Global Petroleum Conference in Madrid.

CALGARY — In its race to secure its energy supply, India is taking a new look at the oil sands.
State-owned Indian energy companies are looking to invest at least $2.5-billion (U.S.) and as much as
$10-billion in Alberta's oil sands as part of a national strategy aimed at fuelling India's fast-growing and
energy-hungry economy, according to officials who spoke yesterday at the Global Petroleum Conference
in Madrid.
“We have looked into those [oil sands] opportunities in Canada and done our due diligence,” said R.S.
Sharma, the chairman and managing director of India's Oil and Natural Gas Corp. (ONGC). “We can
go up to $8- or $10-billion.”
India has been taking stock of the oil sands since at least 2006, when officials first said they were
preparing to spend billions to gain a foothold in the region. But although Calgary investment bankers
talked with Indian companies about possible deals, no concrete bids have emerged, and the Indian
companies have developed a reputation within the oil patch as tire kickers.
Bankers say some deals were scuppered by India's low valuations of oil sands properties. But India's view
of the oil sands may be changing, particularly in light of the price of crude, which closed yesterday at a
record $145.29 on the New York Mercantile Exchange, marking a 50-per-cent rise on the year.
While they are technologically and environmentally challenging to develop, the oil sands are also one of
the few remaining places in the world where companies can still acquire vast reserves of crude. For
energy-poor, oil-thirsty India, the price may be starting to look better.
“In times to come, when we know that a resource base for oil and gas is drying up everywhere and the
prices going up so high, this production from tar sands is a good commercial proposition,” Mr. Sharma
said.
India's economy is growing quickly, at about 9 per cent a year, as the country develops its manufacturing
and service industries. However, energy is a huge concern; India's 2008 oil consumption is expected to be
about 100,000 barrels a day greater than in 2007, but the country has little in the way of domestic oil and
natural gas.
Consequently, finding new oil supply sources is a priority if the country's boom is to be maintained.
India's Oil Secretary, M.S. Srinivasan, told the Madrid conference that the companies are looking to pick
up holdings rather than buy foreign firms, and are looking to invest between $2-billion and $2.5-billion.
That could move them closer to doing a deal in Alberta. “It's not getting any easier to find areas that aren't
controlled by [state-owned] national oil companies,” said William Lacey, a Calgary-based analyst at
FirstEnergy Capital Corp. “So because there are limited opportunities worldwide, the oil sands will
remain attractive, especially with crude prices at $140 a barrel.”
The regulatory and environmental uncertainties hanging over the region – including forthcoming federal
legislation over greenhouse gas emissions – are in part to blame for India's reticence, said Chris Feltin, a
Calgary-based analyst with Tristone Capital.
“[Indian] interest is definitely real, but we haven't seen more activity because of apprehension over the
royalty changes, labour availability, cost pressures and the environment,” he said. “The playing field for
oil sands producers has been changing in a dynamic way, and until there's more clarity on those issues,
then buyers will keep watching from the sidelines.”
Another factor stalling Indian bids is the lack of clarity over whether national oil companies – often
perceived as operating under government control – would be allowed to make major acquisitions within
Canada. In 2005, the U.S. government blocked a bid by the China National Offshore Oil Corp. (CNOOC)
to buy Unocal Corp. for $18.5-billion, and Industry Canada has said it is opposed to similar deals.
Industry Canada has nevertheless allowed some purchases of oil sands assets that don't currently produce
crude.
But if Indian firms do get comfortable with both the risks and high prices associated with the oil sands,
they may have to spend closer to $10-billion (U.S.) than $2.5-billion. Most publicly traded oil sands
companies are valued far higher; a small firm like UTS Energy, which doesn't yet produce crude but has
a large land position and a promising project under development, is worth almost $3-billion.
One option would be for an Indian oil firm to invest in a junior oil sands company that has a lot of land
but needs financing to get a project off the ground, said FirstEnergy's Mr. Lacey.

NORVAL SCOTT
FROM FRIDAY'S GLOBE AND MAIL
JULY 3, 2008 AT 8:16 PM EDT
http://www.theglobeandmail.com/servlet/story/RTGAM.20080703.wrindia04/BNStory/energy/home