Oil Country Tubular, Malaysia’s UMW to form Rs565 crore JV

The promoters of Oil Country Tubular Ltd (OCTL), a specialized Indian pipes and tubes manufacturer for oil and gas industry, are joining hands with UMW Holdings Bhd, a Malaysian oil and gas equipment company, in a 50:50 venture to make so-called “green pipes” that are then used to make casings, drill pipes and production tubing.

Oil Country, which has Rs262 crore in annual sales, imports such pipes and buys them from other Indian vendors before converting them at a finishing mill at Narkatpally, near here.

The proposed joint venture, with an investment of Rs565 crore, would set up a seamless tubular unit to make green pipes near the finishing mill, said Oil Country managing director Kamineni Suryanarayana. “The objective is to take advantage of the growing demand for our products from both the domestic and international oil and gas exploration industry,” he said.

The facility will have an installed production capacity of 300,000 tonnes per year. “The project would have a debt equity funding of 3:1 and would take two-three years for commercial operations,” Suryanarayana said.

The Indian unit of UMW, UMW India Ventures, recently acquired a 14.9% stake in Oil Country from ICICI Securities Ltd for Rs49.36 crore.

Oil Country currently focuses only on drill pipes manufacturing. “We are unable to take advantage of the increased demand for other products such as production tubing and casings owing to non-availability of green pipes of required quality at competitive prices,” Suryanarayana said.

As a result, the company is unable to utilize its processing capacity for casings and tubings, and the overall capacity utilization in fiscal 2007 was just 22%. The company has an installed capacity of 50,000 tonnes of casing pipes, 15,000 tonnes of tubings and 10,000 tonnes of drill pipes.

An analyst firm has predicted robust demand for the project as oil and gas investments grow rapidly in India. “Of late, a lot of Indian and international players have shown interest in laying pipelines in the domestic market to supply gas to the consumers,” said a study by Elixir Web Solutions. “With major companies investing in India by setting up their refineries, going through mergers and acquisitions would only contribute to the growth of the industry.”

New gas finds in the Krishna-Godavari basin in the Bay of Bengal would also contribute to demand for such pipe products, an industry expert said.

“The Indian demand has largely been generated due to the Nelp (new exploration licensing policy) rounds of licensing as well as the discoveries in the eastern coast,” said Ravi Mahajan, a partner with Ernst & Young.

“On completion of the seamless tubular green pipes facility, we would get long-term benefits and stability in our operations, in addition to substantial improvement in the profitability, cash flows besides enhancing the product range,” predicted Suryanarayana.

“We expect a turnover of around Rs300 crore, including Rs180 crore of exports, during the current fiscal,” he said. The company registered export revenues of Rs104 crore on total sales of Rs262 crore in 2006-07.