India's big refiners think global

By Hiral Vora and Jonathan Leff

MUMBAI (Reuters) - India's big private refiners this week staked out aggressive plans to become integrated "mini-majors" with overseas oilfields and petrol stations, a strategy that just might work -- if they can get big enough.

Top officials from Reliance Industries (RELI.BO: Quote, Profile, Research, Stock Buzz) and smaller rival Essar Oil Ltd (ESRO.BO: Quote, Profile, Research, Stock Buzz) told the Reuters India Investment Summit they needed to boost overseas output to enhance the supply security of their refineries, which they are expanding to become the biggest and fourth-largest in the world respectively.

And they are also eager to buy retail outlets abroad where they can sell fuel at market rates, as opposed to regulated local prices that are kept intentionally low by the government.

But, even with a combined refining capacity of some 1.9 million barrels per day (bpd) at the end of this decade, the two firms are still half the size of vertically integrated majors such as Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) or BP Plc (BP.L: Quote, Profile, Research, Stock Buzz).

"The key is if you want to be an integrated player then you have to have scale," Manisha Girotra, managing director and chairperson for UBS India, said at the Reuters Summit.

"You can't be one of the smaller players."

Reliance, India's biggest listed firm with a market capitalization of over $100 billion, and Essar Oil hope to be producing more than 500,000 bpd at overseas oilfields within the next five years, officials said, covering more than one-quarter of their capacity as a way to guarantee future supplies.

They're not alone in that pursuit.

While huge state-owned refiners like China's Sinopec Corp (SNP.N: Quote, Profile, Research, Stock Buzz) (0386.HK: Quote, Profile, Research, Stock Buzz) and national standard-bearers like Malaysia's Petronas PETR.UL have stolen the limelight in the race for resources, private firms like Japan's Nippon Oil Corp (5001.T: Quote, Profile, Research, Stock Buzz) and Singapore Petroleum Co (SPCS.SI: Quote, Profile, Research, Stock Buzz) are also searching for oil.

However their independent peers in the West, such as Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz) of the United States or Europe's Petroplus (PPHN.VX: Quote, Profile, Research, Stock Buzz), have steered clear of deviating into the upstream.

Some analysts say the logic of integration and supply security may be a smokescreen for the desire to capitalize on oil prices CLc1 of near $100 a barrel, especially with growing fears that the "golden era" of booming profit margins may be drawing to a close at the end of this decade.

"Every commodity guy talks of getting into exploration and production, and they may give lots of excuses, but all of them, cutting across the line, are attracted by high energy prices", said Kumar Manish, associate director at consultancy firm KPMG.

RESERVES PRICEY

Atul Chandra, president of Reliance's international oil business, this week signaled the firm would shift from years of strong organic growth to pursue acquisitions of up to $15 billion, but said he was reluctant to pay up for proven reserves.

"Getting discovered properties is extremely difficult, even if you get that, they hardly leave any value for you. We cannot acquire for the sake of acquiring," he said.  Continued...