Indian Oil Corporation Explores Turkish Refinery and Fuel Markets In Europe

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Researched by Industrial Info Resources (Sugar Land, Texas)--A consortium led by IOC-Calik, a joint venture between Indian Oil Corporation Limited (IOC) (BOM:500312) (New Delhi) and Calik Energy (Ankara, Turkey), plans to develop a 15 million-ton-per-year (300,000 barrels per day) greenfield refinery and petrochemical complex at the port city of Ceyhan in south Turkey, with an investment of about $10 billion. Eni S.p.A. (NYSE:E) (Rome, Italy), a multinational oil and gas company, and KazMunayGas (Astana, Kazhakhstan) are also part of the financial operation led by the joint venture. The pre-feasibility report for the project has been submitted. The refinery is scheduled to be commissioned by 2012. Calik is likely to set up a new company, Eastern Mediterranean Petrochemicals and Refining Company, to handle the development and operation of the proposed complex.

According to the terms of the initial proposal put forth by the joint venture, all four members were offered an equal stake in the project, while the joint venture would control the management. However, the shareholding structure was not finalized since attempts were made at a later stage to include more partners such as the State Oil Company of Azerbaijan Republic (SOCAR). A meeting of the consortium members to finalize the shareholding structure and to determine available funding options for the project is scheduled to take place later this month. IOC is eyeing a 25% stake in the project, which would equal an investment of $750 million to be made by the company over the next six years.

IOC will also pick up a 12.5% stake in the $2 billion pipeline from the Black Sea city of Samsun to Ceyhan. Trans-Anadolu Pipeline Company (TAPCO), a joint venture between Eni and Calik Energy, is laying the 550-kilometer-pipeline, which will carry up to 1.5 million barrels of crude oil per day, primarily from Kazakhstan, and will reduce tanker traffic along the Bosporous Strait by nearly 50%. IOC also wants to acquire 52% to 53% stake in Petkim Petrokimya Holdings AS (ISE:PETKM), a petrochemicals complex in Aliaga, Izmir, Turkey. IOC plans to enter the retail marketing business in Turkey, which will include the transportation of crude oil from the Black Sea and the Caspian Sea to India.

In 2005, the Indian company entered into a memorandum of understanding with the Calik Group to explore investment opportunities in the downstream sector in Turkey. The companies are exploring possible cooperation in the areas of bunkering, marketing of petroleum products and petrochemicals. After talks between India and Turkey on the development of an efficient energy transportation route from Turkey to India through Israel, a proposal was forwarded to IOC, which is now exploring options in Mediterranean ports. IOC and Oil India Limited (OIL) (Noida) are pursuing upstream exploration and production opportunities in Turkmenistan and Kazakhstan. IOC plans to emerge as a transnational energy major and has already set up subsidiaries in Mauritius, Sri Lanka and the United Arab Emirates. The company has also firmed up a capital expenditure of $10.75 billion to fund its overseas ventures up to 2012.

IOC, along with OIL and ONGC Videsh, the overseas investment arm of Oil and Natural Gas Corporation Limited (BOM:500312) (ONGC) (Dehradun, Uttarakhand), has submitted a commercial proposal to the Iranian authorities for investing $3 billion in developing the Farsi gas field in Iran. The Farsi block holds recoverable gas reserves of 12.8 trillion cubic feet. The consortium has already invested $90 million in the block, which is the first overseas asset over which Indian firms claim exclusive exploration rights. The service contract was awarded in 2002, but permission to develop the asset has not yet been granted.

Analysts are divided over IOC's endeavors to penetrate the European and U.S. markets. On one hand, these markets are considered to be strategic to IOC's growth since no new refinery has been developed in these markets in the last decade. However, with the sudden surge in global refining capacities, the demand for petroleum products may decrease by the time ongoing projects see completion in 2012.

On the domestic front, IOC is in talks with Chevron (NYSE:CVX) (San Ramon, California), ExxonMobil (NYSE:XOM) (Irving,Texas), Petrobras and Reliance Industries Limited (BOM:RELI) (Mumbai) for joint participation in the bidding process for oil and coal blocks being offered in the seventh round of the Indian government's New Exploration Licensing Policy. It will also bid on its own for nine small blocks that have been offered by the government.

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