Oil Allied Services: Huge opportunity ahead

 

 

Rising E&P spend to warrant increased demand for support services

Strong economic growth in India has warranted a strong demand for oil and natural gas in the country. With India importing more than 70% of crude oil requirements and starved for natural gas, investments in exploration activities of the companies have increased considerably. Government of India, through six rounds of NELP has attracted commitments of more than US$12bn.

 

Off late, impetus for onshore blocks have increased and in the seventh round of National Exploration Licensing Policy (NELP), government has offered 57 blocks of which more than 50% are onshore blocks as compared to only 38% offered so far. These activities would unfold huge opportunity for onshore support service providers like Shiv Vani Oil and Gas Exploration Services Ltd (SVL), Alphageo India Ltd (AGIL) and Asian Oilfield Services Ltd (AOSL).

 

Shiv Vani Oil and Gas Exploration Services Ltd (BUY, Target Rs674, Upside 15.2%)

SVL is the largest integrated player in the Indian onshore E&P service space with 25 drilling rigs and 10 sets of seismic crews. The company is expanding its fleet base to 32 rigs. It has ventured into CBM integrated services with a contract from ONGC. The current order book of the company is at Rs34bn as compared to CY06 sales of Rs5bn. We maintain BUY on the stock with a target price of Rs674..

 

Alphageo India Ltd (BUY, Target Rs916, Upside 22.0%)

One of the leading seismic survey operators for onshore E&P fields, AGIL is upgrading its crew to make them capable of conducting 3-D seismic surveys. The company has also plans to add one more crew to the fleet. The current order book is at Rs1.8bn compared to FY07 sales of Rs500mn. We maintain BUY on the stock with a target price of Rs916.

 

Asian Oilfield Services Ltd (Not Rated)

AOSL is another leading service provider for onshore seismic survey. It is in the process of acquiring two additional crew capable of conducting 3-D seismic survey. It also has plans to acquire a CBM rig and is scouting for acquisitions, which could trigger a strong revenue growth for future. The current order book with the company is Rs1.6bn as compared to sales of Rs250mn in FY07.