Global Oil Markets Oil is one of the world’s most significant sources of commercial energy. It met 37% of the
global energy needs of 10,224 million tonnes of oil equivalent (“MTOE”) while its nearest rivals, coal and natural gas, met 27% and 24% respectively, as shown in the chart below during the year 2008
Contd…According to a Statistical Review of World Energy
the Middle East dominates proven reserves of oil, with about two-thirds of the estimated 1,189 billion barrels of the world’s proven reserves.
Saudi Arabia(263 billion barrels), Iran (133 billion barrels) and Iraq (115 billion barrels) are the three largest holders of proven oil reserves in the world.
The three largest producers of oil, including natural gas condensates, in the world are:
Saudi Arabia (10.6 million barrels per day), Russia (9.3 million barrels per day) and the United States(7.2 million barrels per day).
REFINED PETROLEUM PRODUCTS
LPGs: Liquefied petroleum gases, consisting primarily of propane and butane, are produced for use as a premium fuel and as an intermediate material in the manufacturing of petrochemicals.
Naphtha: Principally used as a feedstock by the petrochemicals industry for producing basic building blocks such as ethylene, propylene, butadiene, benzene, toluene and xylenes, which in turn are used for the production of plastics, synthetic fibres, synthetic rubbers and other products.
Gasoline: Various gasoline blendstocks are blended to achieve specifications for regular and premium grades in both summer and winter gasoline formulations, wherever applicable. Additives are often used to enhance performance and provide protection against oxidation and corrosion.
Middle distillates: Middle distillates are kerosene, aviation fuel, diesel fuel and heating oil.
Fuel oils: Many marine vessels, power plants, commercial buildings and industrial facilities use fuel oils orcombinations of fuel oils and distillate fuels for heating and processing.
Petcoke: Petroleum coke is a solid residual byproduct of delayed coking process. Over 75% of petcoke produced is fuel grade and has about 15-25% higher heating value than coal.
Bitumen: Residual product of crude oil vacuum distillation, which is used primarily for asphalt coating of roads and roofing materials.
Niche, high value-added refined petroleum products: Various refined petroleum products produced in relatively small quantities such as base oils, MTBE, ETBE, TAME, Alkylate, Iso Octane and other refined petroleum products. These products are commonly used as blending components for transportation fuels or for lubricants.
Demand for Petroleum Products
Major Players in the Oil IndustryThe following are the 10 major players in the Oil
Refining IndustryBasellSinopecInnovane/BPTotal PCExxonMobil Chemical CoSABICBorealisReliance Industries / IPCLFormosa Plastics Corp.PetroChina
MAJOR PLAYERS IN INDIACurrently there are about 17 refineries of
which seven are owned by Indian Oil Corporation (IOC),
two each by Hindustan Petroleum Corporation Ltd. (HPCL) and Madras Refineries Ltd (MRL)
One each by Bharat Petroleum Corporation Ltd (BPCL), Cochin Refineries Ltd (CRL), Bongaigoan Refinery & Petrochemicals Ltd (BRPL), Numaligarh Refineries Ltd (NRL), Mangalore Refinery & Petrochemicals Ltd (MRPL) and Reliance Petroleum Ltd (RPL).
OVERVIEW OF RELIANCE REFINERY The company, formed to set up a greenfield petroleum
refinery and polypropylene plant (the“Project”) to be located in a Special Economic Zone in Jamnagar in the state of Gujarat in western India.
The refinery has a total atmospheric distillation capacity of approximately 580 kilo barrels per stream day (“KBPSD”). The polypropylene plant has a capacity to produce 0.9 million metric tonnes per annum (“MMTPA”).
The capital cost of the Project is estimated at Rs. 270 billion (approximately US$ 6 billion). We propose to fund the Project through debt of Rs. 157.5 billion (approximately US$ 3.5 billion) and equity of Rs. 112.5 billion (approximately US$ 2.5 billion), including proceeds from the Issue. Any additional equity raised in excess of Rs. 112.5 billion will be used as additional contingency for the Project.
OPERATIONAL SUPPORT SERVICES BY RIL’S AFFILIATES Land and associated infrastructure in SEZ: Reliance
Infrastructure Limited (“RFL”), a wholly owned subsidiary of RIL and the developer of the SEZ, has acquired and leased the required land of approximately 1,700 acres of land for our proposed refinery and polypropylene plant in the SEZ.
Power and Steam: Steam and power required for our refinery and polypropylene plant is supplied supplied by Reliance Utilities and Power Limited (“RUPL”).
Port and Terminal Facilities: Reliance Ports and Terminals Limited (“RPTL”), a proposed co-developer of the SEZ, provides the port and terminal facilities required for the proposed refinery’s import of feedstock and export of petroleum products.
Construction Services: Reliance Engineering Associates Private Limited (“REAL”) has provided civil construction services during the construction of the proposed refinery.
Exports RIL exports its petroleum products to over
30 countries including a large number of destinations in the United States, Europe, the Mediterranean, South and East Africa, Brazil and several Asian markets including Sri Lanka, Singapore, Indonesia, Korea, Japan, and China, which are the most quality conscious markets
Some of RIL’s key customers include:(a) national oil companies and end users such
as CEYPETCO in Sri Lanka and Petrobras in Brazil,
(b) oil majors such as Shell, BP and Chevron Texaco.
FUNDAMENTAL PRINCIPLES AND STRATEGIES DRIVING GROWTHBuilding world scale, and world class Assets. Deploying leading edge Global Technologies. Ensuring a high degree of Vertical Integration. Being globally competitive in all our operations. Efficiently implementing multi-billion dollar
projects. Achieving market leadership. Delivering International quality of products. Emphasising Capital Efficiency and Productivity. Adopting Financial Conservatism. Attracting, and empowering, top quality people
RPL - STRATEGIC ADVANTAGESGlobal size and scale
– At 27 MTPA, will be amongst Top-10 refineries globally– 1.1 MTPA polypropylene capacity
Superior complexity– Complexity index of 14.5– Higher than RIL’s existing refinery at Jamnagar
Strategic Location– Proximity to Crude source– Logistic advantage for exports
SPV benefits – 100% export oriented – short/medium term fiscal advantage
CHEVRONChevron has a global marketing and
distribution set-up through its Caltex-branded service stations, Star Mart convenience stores and Xpress lube outlets, through which the company markets automobile fuel, lubricants and vehicle additives.
The finished products coming out of Jamnagar could find a ready ride on this network. True, Reliance already has an export network in place, but Chevron is far better as it has been an international player in Asia for over 70 years.
WHY CHEVRON???When the Jamnagar expansion plan is completed in
2008, Reliance will obviously need to tap more sources of crude, to ensure that its refinery runs at optimum capacity and gets the cost advantage.
With global refinery capacity utilisation estimated to be in the range of 87-94 per cent from 2008-2015, after taking into account new capacity creation, operating at full steam should not bother Reliance.
But as the expanded facility in Jamnagar will be operational in that period, Reliance needs to be on par, or above industry standards in capacity utilisation, to get the edge in refining margins.
To compete with singapore (gross refinery margin)
CONTD..It is more to do with the ability to tap into
the technical know-how for both the existing business and areas where Reliance may not yet have a presence.
Also, Chevron is adding to its portfolio by actively exploring in Bangladesh. The refining destination of a probable oil find could be Jamnagar. Reliance must be hoping that Chevron hits a pot of black gold.
BENEFITS - CHEVRONNearly 60 per cent of the world's 661
refineries have sub-economic capacities (less than 150,000 BPD). With an expansion plan of adding a capacity of 580,000 BPD, Reliance is four times bigger.
Reliance makes strategic acquisition in East AfricaHas acquired a majority stake and
management control of East Africa-based (GAPCO) Gulf African Petroleum Corp in the downstream sector
The company said the acquisition has been made through its wholly owned subsidy Reliance Industries Middle East, Dmcc (RIME), a company registered in the United Arab Emirates.
BENEFITS OF ACQUISITIONGAPCO owns and operates large storage
terminalling facilities and a retail distribution network in several countries including Dar Es Salaam in Tanzania, Kampala in Uganda and Mombassa in Kenya as well as depots in East and Central Africa.
It also 250 outletsThe East African countries, where GAPCO
operates, have demonstrated rapid economic growth and have progressive government policies in place,
CONTD..'The demand for petroleum products in
these countries is rising steadily and has mirrored the rapid GDP growth. Import of petroleum products in these countries is also expected to rise in the near future. Further, these markets are easily accessible from India and in that sense provide a strategic fit for exports from India.
FINANCIAL PERFORMANCEIn 1999-2000, the company achieved various
milestones. First Indian Private Sector company to post
Sales of over Rs 20,000 crores (US$ 4.6 bn). Gross Profits of over 1 bn US$ - Rs. 4746
crores (US$ 1.01 bn). Net Profit of over half a billion US$ - Rs. 2,403
crores (US$ 551 mn). Reliance ranks amongst the top three
chemicals companies in the World in terms of return on Net Worth (RONW) at 22 %.In Asia, RIL's RONW is the highest amongst all chemicals companies.
COMPARISON
CONTD..
EPS 2007-08 133.9
BOOK VALUE PER SHARE
2007-08 560.3
SHARE PRICE
DEBT EQUITY RATIO 2007-2008 0.45:1
NET PROFIT MARGIN 2007-2008 14%
DIVIDEND PAYOUT 2007-08 RS 1631 CR
EQUITY CAPITAL 2007-08 RS 1454
RESERVES AND SURPLUS
2007-08 RS 78313
CONTD..RIL's compounded Annual Growth rates for the past 10
years. Sales Growth - 27 % p.a. from Rs. 1,841 crores (US$ 422
million) to Rs. 20,301 crores (US$ 4,654 million). Total Assets Growth - 28 % p.a. from Rs. 2,553 crores
(US$ 585 million) to Rs. 29,369 crores (US$ 6,733 million).
Net Worth Growth - 29 % p.a. from Rs. 1,153 crores (US$ 264 million) to Rs. 13,983 crores (US$ 3,210 million).
Net Profits Growth - 39 % p.a. from Rs. 91 crores (US $ 21 million) to Rs. 2,403 crores (US $ 551 million).
Market Capitalisation Growth - 43 % p.a. from Rs. 997 crores (US $ 223 million) to Rs. 35,880 crores(US $ 8 billion).
JAMNAGAR LOCATION ADVANTAGE
RPL - REFINERIESRIL has a 33 mmtpa refinery at Jamnagar, which is
the third largest at a single location in the world. The refinery's capacity is 22.6 % of India's total refining capacity.
The company is also setting up a second refinery near the existing one with a capacity of 29 mmtpa.
Reliance Industries Ltd (RIL) is evaluating a plan to set up its third refinery at Jamnagar in an ambitious project to reach a total capacity of 100 million metric tonne per annum, the largest at a single location in the world.
CONTD..
RPL said the refinery would be "one of most complex in the world", implying it would be able to process almost all varieties of crude. To put it simply, the plant can process cheap, low-grade crude into petrol and diesel.
Jamnagar will become the world's largest hub for petroleum refining. Reliance Petroleum will nearly double its capacity from the current 0.66 million barrels of crude oil a day to process 1.24 million BPD
CONTD..The US Export-Import Bank - has approved a
long-term loan guarantee of $400 million to Reliance Industries Ltd to source its equipment and services from the US for its hydrocarbon exploration and production service in the Krishna-Godavari Basin
RIL will use the loan for its purchases of American engineering services, oilfield equipment, offshore platform support, and drill and well services.
A share of the loan will also be used for the ongoing construction work at the Jamnagar refinery.
KRISHNA GODAVARI BASIN
KRISHNA GODAVARI BASINThis is the first time an all-Indian team has
built something like this, a project Goldman Sachs lists as No. 1 in its list of projects that have changed the world.
RIL applied for licences to pipe KG Basin gas directly into 57 town and cities, where about 120 million households could use it to replace expensive LPG cylinders and unsafe kerosene stoves.
Chances to enter into power sector
EXPLORATION AND PRODUCTIONProducing Assets - Panna-Mukta & TaptiExploration Blocks - 34 blocks in India and
one each in Yemen and OmanExploration Acreage – about 340,000
sq.km. and 580,000 sq.kmCoal Bed Methane - 5 blocks (4,000 sq.km.)
EXPLORATION AND PRODUCTIONWorld largest gas discovery in 2002 - Krishna-
Godavari basin (14 TCF OGIP) – further potential upside under exploration
Discovery in NEC-25- puts Mahanadi offshore to petroliferous map of India (2.3 TCF OGIP)
Discovered CBM Gas – puts Coal Bed Methane in the map of India (3.65 TCF OGIP)
2008-09 will be a watershed change with E&P contributions to overall revenue increasing significantly
EXPLORATION AND PRODUCTIONRIL now invests US$ 300 - 500 million
annually on Exploration.E&P likely to contribute 15-20% of revenue
by 2010Petroleum products demand in India has
grown at 5-6% annuallyover the last decade - per capita
consumption is still amongst the lowest in the world
RPL- VALUE CREATIONWill help unlock value for existing RIL shareholdersProvide an opportunity to new investors to
participate in pure refining opportunity and Reliance’s growth– Listing to provide valuation benchmark thereby helping unlock immediate value– Ring fence new refinery business with differentiated business model, focused business management and administration– Capture the conducive market opportunity for capital raising
Enable options of bringing in strategic/ financial partners going forward
Allow RIL to conserve cash flows for emerging opportunities in order to accelerate the process of further value creation for all classes of shareholders
7 P’S OF MARKETING MIXProductPricePlacePromotionPeopleProcessPhysical evidence
PRODUCTLiquid petroleum
gas (LPG) Gasoline(also
known as petrol) NaphthaKerosene and
related jet aircraft fuels
Diesel fuelFuel oilsLubricating oilsParaffin waxAsphalt and TarPetroleum coke
PLACE•Strategic location with proximity to crude oil sources and target export markets
•Incentives by virtue of being located in a Special Economic Zone
PRICE PROMOTION•Chevron
HR ISSUEQUESTIONS ONE GETS WHEN GAZING THE
LOCATION OF THE REFINERIES.1.How people are recruited and How they
agree to be in such a dry place?2.Is the safety measures adequate for 80000
employees?3.What about the split up of engineers
managers and other workers?
If they had migrated to a big city, they might have ended up fixing a drainage pipe or welding a broken gate. But thousands of young, untrained workers from around the country chose to go to a dry coastal town in Gujarat.
More than two years later, the decision has proved fruitful. They are not only making the best money, they have also learnt skills that will help them get good jobs in future
Jamnagar, the jewel of Kathiawar, has a rich royal history, but over the past decade, its name has become synonymous with a large-scale petroleum refinery that Reliance Industries runs there.
THE HR BEHIND THE STRATEGYRIL president (HR) VV BhatReliance decided to take the risk as a result of
which the Crafts Training Centre (CTC) came into existence. It tries to convert the raw talent into specific industrial skills and pumps out thousands of workers who might find employment whenever projects are implemented.
As per a data from Director General of Employment and Training, the country has over 4,400 ITIs with over 6.50 lakh seats. States like Tamil Nadu, Maharashtra and Andhra Pradesh have the largest number of ITIs — over 500 centres each. ITIs offer craftsman training in 49 engineering and 49 non-engineering trades.
Health and SafetyAt Reliance Petroleum, protecting people and the
environment is a part of everything they do and every decision they make. They are committed to providing safe workplaces for their employees, customers and contractors
They have a Vision of Zero Harm – zero accidents, zero harm to people and zero damage to the environment. They strive to meet or exceed all laws, regulations and standards applicable to their operations.
Their goal is to eliminate all injuries, prevent adverse environmental and health impacts, reduce wastes, emissions and discharges and promote the efficient use of energy.
They apply the highest standards of quality in their service and products. Everyone at Reliance Petroleum is responsible for getting health, safety, security and environmental issues right.
SAFETY MEASURESHealth is an important component of this
and RIL says it implements comprehensive healthcare programmes at all its sites.
There is an initiative by the name of Change Agents for Safety and Health (CASH) that attempts to introduce a positive change and a continuous improvement in the occupational health practices at the workplace.
Contd..Safety is a legitimate personal expectation
and both a constant corporate and individual responsibility. To ensure that Reliance Petroleum meets this expectation, they have: strong leadership and management at all
levels of the organisationhigh quality equipment that is well maintained
and fit for purposepolicies, procedures and standards in placea trained workforce with the right skills,
attitudes and behavioursregular assessments of our physical work
environments to ensure safe operations
WORKERSEngineers+managers=4500Other workers=80000AMBANI’S CONCERN ON WORKERS“Trust is the corner stone of all our initiation.
We believe that trusting our employees results in superior performance”
INSTITUTESMaharastra institute of tech.Dr. Babasaheb Ambedkar Technological
UniversityNagpur University - Bachelor of Technology
(BTech) - Petroleum Refinery and Chemical Technology
Visvesvaraya National Institute of Technology - Bachelor of Technology (BTech) - Chemical Engineering
University of Calcutta - Bachelor of Technology (BTech) - Petrochemicals and Petroleum Refinery Engineering
AMIE –institute of engineers
strategy - core competenciesOne of RIL’s core competencies is to conceptualise
and implement multi-billion dollar projects on time and in a cost efficient manner.
RIL has proven track record of successfully implementing large projects, including its existing refinery and petrochemicals complex at Jamnagar in Gujarat, its petrochemicals complex at Hazira in Gujarat and another petrochemicals complex at Patalganga in Maharashtra.
These three facilities together accounted for approximately 84% of RIL’s gross fixed assets for the year ended March 31, 2005.
SWOT Analysis STRENGTHSTechnological skillsDistribution channelsProduction qualityHigh resource &
surplus
WEAKNESSES• Failure in forward integration• Unutilized high resource & surplus
OPPORTUNITIES• Increase in demand in Chinese & Indian market•Gas from KG basin
THREATS• Possibility of 100% FDI• Windfall taxes• Government
5 Competitive forces
Code of conduct
Compliance with applicable lawsConflict of interestConduct of business relationshipProtection and proper use of company’s
resourcesIntellectual propertyPrivacy and confidentiality
Corporate opportunityInteraction with mediaFraudulent and unfair practices in security
marketsFair dealingHealth safety and environment
Free and fair competition\anti trustReporting of unethical practices(whistle
blower mechanism)Applicability of the codeAmendment modification and waiver
CORPORATE SOCIAL RESPONSIBILITY
Reliance group company Reliance Petroleum is setting up a 29-million-tonne per annum high-complexity petroleum refinery in the Jamnagar special economic zone. Moti Khavdi village is adjacent to the plant site.
RIL has built a market and created a garden for commercial plants in Moti Khavdi village in Gujarat for Rs.10 million under its Corporate Social Responsibility
The market, set up by Reliance as part of a project to develop the village Moti Khavdi in the state's Jamnagar district, will accommodate shops for eatables, vegetables, spices, clothes and cutlery and shoes.
The shops will provide 46 hawkers a permanent place to sell their goods.
CLOSURE OF RELIANCE PETROL BUNKSReliance Industries has shut all of its 1,432 petrol
pumps in the country after sales dropped to almost nil as it could not match the subsidised price offered by public sector competition.
Reliance sold petrol at a rate of around Rs.4 costlier than what was available at other petrol pumps,because these other petrol pumps were government subsidized and hence their prices were less.Also, even after selling it Rs.4 costly, Reliance was having a loss of Rs.3 per liter(approximately) on the petrol.
CLOSURE OF RELIANCE PETROL BUNKSPublic sector currently sells petrol at a loss of Rs
13.97 a litre and diesel at a discount of Rs 20.97 per litre. This revenue loss is made up by the Government through issue of oil bonds and subsidy share from upstream firms like ONGC and GAIL.
The company owned less than three per cent of the 36,936 petrol pumps in the country. Of the total retail outlets, state run Indian Oil, Bharat Petroleum and Hindustan Petroleum own 34,304 pumps, while the remaining belong to private sector Essar Oil and Shell India.
RIL SURVIVAL SKILLS
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