E&P (exploration and production) is a new business for BPCL. What is your strategy?

Yes, it is a new business for us. We have spun off oil exploration as a separate company, BPCL Resources Limited. It is also a very different business from refining and marketing. You need a different kind of people and a different set of expertise.

Considering all these reasons, we decided to spin it off separately, although it remains a wholly-owned subsidiary of BPCL. As a new business, it will also need exclusive attention, and it will get this as a separate company.

Our E&P strategy is simple. We are new to the business, we will initially take smaller stakes in producing blocks and when we have developed the required in-house expertise, we will start bidding as an operator.

Have you identified any specific areas where you will look for oil?

Right now, we want to farm-in wherever we can. We are actively looking at farming in the Krishna-Godavari basin and Kaveri basin blocks, as well as farming in Oman and the Timor Sea.

We have looked primarily at the Australian and Indonesian offshore and some areas in North Africa like Yemen. We thought, since we are getting into this business a little late, we will look at areas that are not over-explored, so the Australian offshore and the Timor Sea off Indonesia looked like a good prospect. As does North Africa.

We have already got around three blocks in the Australian offshore, where Oilex is the operator. We have the option of putting in more money and increasing our stake to 40 per cent as and when oil or gas is struck. We have some interest in blocks in Oman and we are looking out for more assets in Indonesia and Oman.

We have also got some blocks under the NELP (New Exploration Licensing Policy) rounds. We have stakes in some blocks in the Kaveri basin where ONGC is the operator with 60 per cent stake and we hold 40 per cent.

The thing about Kaveri basin is that it is a porous rock bed and as such is likely to contain smaller amounts of gas. We estimate that the basin should contain a few billion cubic feet of gas, which for ONGC is a small amount of gas.

So ONGC has not really been putting in much effort in drilling there. We have, in a way, twisted their arm to begin drilling in this basin. In fact, they offered us the operating interest but as we feel that we don't have the expertise, we were quite comfortable with the 40 per cent stake.

Now, we have finalised plans to start drilling aggressively this year. Drilling also has been held up because no rigs were available. Now we have got one. By the end of this year, we should start drilling there in earnest.

What is the quantum of gas in the Kachhar field and how do you plan to evacuate it?

Ours and Premier Oil's initial estimates show that there may be close to two billion cubic feet of gas in the Kachhar field. But these are early days yet and we still have to work out ways to commercialise the find and evacuate the gas. We are hoping that by the time our gas production is ready to be commercialised, the Myanmar pipeline will be ready.

But the pipeline seems to be uncertain.

Yes, it does seem uncertain at the moment but I believe that it has to come. Myanmar has to evacuate its gas to sell it, and Indian companies, like Gail, have some interest in those blocks. So the pipeline will be have to built, sooner or later. But the question for us is, is it going to be built in time for us to evacuate our gas? If it is not, then we may consider building our own pipeline.

When do you expect the exploration business to start showing returns?

In another five-to-six years. By this time we expect that our exploration blocks will show some positive results and we will be able to commercialise some of the finds. We have also targeted selling five million metric tones of natural gas by 2010-11. We sell around one million tonnes now. Gas finds in places such as Kachhar and Kaveri basin, once their commerciality has been established, will help us reach the five million tonne target, and we will be able to service the growing gas markets in south India around Coimbatore.

Will you consider listing the exploration business some time later?

Right now, there is no hurry to list it. We have put in Rs 1,000 crore (Rs 10 billion) as capital in BPCL Resources. As and when we need to put in more money into the business, we can do it from our own kitty. Our businesses have a combined turnover of Rs 86,000 crore (Rs 860 billion). We will look at listing when we come to a stage where we will need to invest big money. For now, we have targeted an investment of Rs 6,000 crore (Rs 60 billion) into this business from our own kitty.

What are your plans for the Bina refinery?

We have already announced that we plan to fund a part of our equity requirements from an IPO, which should be sometime in the first quarter of 2007-08. The offering will be in the region of Rs 1,000 crore. It will be listed as a separate company, Bina Oman Refinery Limited, in which we will hold 50 per cent, the financial institutions will be offered 23 per cent and the Oman Oil Company will hold 2 per cent stake.

The remaining 25 per cent will be offered to the public. The final cost of the refinery is around Rs 10,400 crore (Rs 104 billion). We have already tied up the debt portion of Rs 6,400 crore (Rs 64 billion) through a consortium of 20 banks led by the State Bank of India.

We have also reconfigured the refinery to conform to Euro IV requirements. This will enable us to process upto 85 per cent of the crude oil into 'A' category distillates such as petrol and diesel, while the residues can be used to power the refinery.

As a result we will be using 100 per cent of our crude throughput. We have already placed orders for all the reactors with Chinese manufacturers and we plan to start the construction soon. The refinery should be fully operational by December 2009.

You have not looked for other partners for the refinery after the Omanis pulled out?

We are quite comfortable doing it ourselves. Everyone we spoke to wants us to expand the capacity to over 10 million tonnes or more; we are quite comfortable with the six million tonnes that we have planned for.

Since Oman Oil has already invested Rs 75.5 crore (Rs 755 million) in the project, they are being offered a stake, that is all. Frankly, we don't see the need for a bigger refinery. We have a shortfall of four million tonnes in the northern and central Indian markets for our products, and we buy from others to fulfil the demand in these markets right now. After Bina's commissioning, we will sell our products in these markets.