Buy Shiv Vani Oil; target of Rs 325: Sunidhi Securities

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Buy Shiv Vani Oil; target of Rs 325: Sunidhi Securities

Sunidhi Securities is bullish on Shiv Vani Oil & Gas Exploration Services and has recommended buy rating on the stock with a target of Rs 325 in its February 21, 2011 research report.

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Sunidhi Securities is bullish on Shiv Vani Oil & Gas Exploration Services and has recommended buy rating on the stock with a target of Rs 325 in its February 21, 2011 research report.

"Incorporated in 1989, Shiv Vani Oil & Gas Exploration Services (SVOGESL) is Delhi-based Company provides a complete suite of onshore activities; offshore operations, natural gas compression & allied services-ranging from shot hole drilling and seismic surveying through to directional drilling, engineering & logistics support vehicles. The Company owns the largest fleet of onshore rigs in India after ONGC. It has a fleet of 40 rigs and 10 seismic survey crews. It has two 2D crews and eight 3D crews (seismic survey).

"SVOGESL offers a wide spectrum of services, from seismic data acquisition services to onshore drilling. It is the only integrated Coal Methane Bed (CBM) services provider and successfully pioneers in horizontal & directional drilling in the country to enhance CBM procurement in India. SVOGESL has gained a position of strength and acquired a large number of shot-hole drilling/work over rigs, which makes it own the largest fleet of onshore rigs in India. The company in collaboration with its global business partners, offers a full range of consultation services for CBM production. SVOGESL's clients include Assam Company, Cairn India, Engineering Projects India, Indraprastha Gas, Niko Resources, Oil India, ONGC and Reliance Industries. Of the 25 new rigs acquired in the last three years, 15 are in the 2000-3000HP range. None of the other players has a significant presence in this category of assets, so Shiv-Vani enjoys high margins. Nor is an increase in competition imminent, as acquisition of a new rig involves a delivery lead time of about 12 months."

"The company's services span seismic studies; deep drilling services; specialised drilling for coal-bed methane and integrated well management. Shiv-Vani Oil & Gas, a leading domestic player in onshore oil & gas exploration has made aggressive investment to capitalise on the USD 4bn pa onshore opportunity in India, but new order wins have been rather lean in the current fiscal. Significant dependence on ONGC and Oil India is the only concern for Shiv-Vani Oil. The indigenous supply of crude oil is limited to 30% of the demand while the remaining is met through imports. Further, the country's current annual oil requirement is expected to grow to 365mn tonnes by 2025. However, the maximum available crude oil reserves in India are estimated to be around 5.7 billion barrels, comprising 0.5% of the global reserves. The current rate of production, the country's crude oil reserves would last for only 19.5 years, as against 40 years for global reserves. These circumstances have created an urgency to translate into action with a significant rise in Oil and Gas Exploration & Production (E&P) expenditure within the country."

"In the past five years, globally 18k oil wells were drilled with an estimated expenditure of USD 240bn. While forecasts have tempered down going forward, the quantum spend will still be higher (USD 300bn) and wells drilled will be 20k. The average cost of a new deepwater rig is USD 650-750 million and the average cost of a new jack-up rig is USD 200-USD 250 million. Thus, deepwater rigs account for 75%-80% of aggregate worldwide investment in new offshore rig construction. The average time required to build a deepwater rig is 3 to 3.5 years and the average time to build a jack-up is 2 to 2.5 years."

"The two major sources of domestic demand for onshore exploration services in India are known fields, and the 256 new blocks allocated under NELP (National Exploration and Licensing Policy) since 2000. At least a third of the blocks were nominated before the NELP came into existence in 2000, and remain unexplored (most of these blocks are with ONGC and Oil India). Amongst the 256 new NELP blocks, about 100 are onshore blocks. Apart from this, the Middle East is also a potential source of business for Shiv-Vani; following three rig deployments in Oman, the company is qualified to bid for more business in the region. The order book of Rs 2, 700 crore as on 31 Dec 2010 gives strong revenue visibility."

"We have a positive outlook on crude and SVOGESL will be a key beneficiary in the Indian onshore services space as industry activity is buoyed by pending NELP commitments and ONGC's and Oil India's Capex outlay. SVOGESL is likely to post an EPS of Rs 46 in FY11 and Rs 49 in FY12. At the CMP of Rs 245, the share is trading at a P/E of 5.3x on FY11E and 4.9x on FY12E. We recommend BUY with a target of Rs 325 in the medium term," says Sunidhi Securities research report.

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