Oil&Gas Eurasia Blog

• The Scheme of Amalgamation of Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) has been sanctioned by the Hon’ble High Court of Judicature at Bombay and the Hon’ble High Court of Gujarat at Ahmedabad. The Scheme has become effective from 11th September 2009 with the appointed date being 1st April 2008.

• The Board of Directors of Reliance Industries Limited proposed, subject to shareholders
Approval, proposes issue of bonus shares in the ratio of one equity share for every one equity share held in the Company.

• The Board also declared dividend of Rs. 13 per share for the financial year 2008-09. This has resulted in a payment of Rs. 2,219 crore inclusive of taxes of Rs. 322 crore.

• Both the bonus shares and dividend will accrue to the shareholders of erstwhile Reliance Petroleum Limited which has been amalgamated recently with the Company.

• The Petroleum Trust sold 1,50,00,000 equity shares of the Company. The Trust realized about Rs. 3,188 crore, at an average price of about Rs. 2,125 per share. Reliance Industrial Investments and Holdings Limited, a wholly owned subsidiary of RIL, is beneficiary of the Trust. The cash proceeds, net of transaction expenses, have resulted in reduction of Investment insubsidiaries. Profit on sale of these shares, net of transaction expenses, of Rs. 2,941 crore (US$ 611 million) will be reflected in the consolidated accounts of RIL.

• On 2nd April 2009, gas production commenced from KG D6. The project was completed in a
record time of six and half years, as against world average of 9 – 10 years for similar deepwater
facilities globally.

• RIL surrendered the EOU status for its refinery with effect from 16th April 2009 to cater to
increasing demand of petroleum products in the Country.

• A T Kearney lists RIL as one of the Top 25 Global Champion for 2009 which managed to
outperform the competition in the midst of global financial meltdown.

• Boston Consulting Group (BCG) ranks RIL as the 5th most sustainable value creators.

Reliance Industries Ltd (RIL) today told the Supreme Court that the gas dispute between the company and Reliance Natural Resources Ltd (RNRL) cannot be put to arbitration, and resolution to the dispute lies in the relevant section of the Companies Act.
Parekh and Co, advocates for RIL, gave a written statement on this to the apex court.

The scheme of demerger (of the original Reliance empire) did not make any mention of arbitration and it only contemplated that RIL will demerge its subsidiary company (RNRL) and hand over assets, the statement said, adding that issues obstructing a suitable arrangement in gas supply are beyond the purview of the demerger scheme.

“What RNRL is seeking is way beyond the scheme — it seeks an order for specific performance of the MoU (at the time of demerger),” said RIL. It also said the demerger scheme involves ‘issues of public interest and public policy’ and therefore it cannot be put to a dispute resolution mechanism.
The submission comes after the Bench at the apex court, during the course of case hearing, enquired about the possibility of arbitration between the two companies. “There are some parameters to arrive at suitable arrangements for supply of gas,” Justice R V Raveendran said on Tuesday. “If you are not able to reach a suitable arrangement… we can direct you to arrive at a suitable arrangement or direct you to go for arbitration.”

RIL and RNRL have moved the apex court on the Bombay High Court order of June 15, which had asked RIL to provide 28 million standard cubic metres per day of gas to RNRL at a price of $2.34 mBtu. RIL, however, contends that it cannot do so in view of government policy. It has also said it cannot sell at a price lower than the government approved price of $4.2.

Source : http://www.business-standard.com
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Mukesh Ambani owned RIL, accused of being hand-in-glove with the ministry of petroleum of natural gas by Anil Ambani’s RNRL, for the RIL for the first time on Tuesday admitted before the Supreme Court that the dispute over gas supply and pricing between the companies was benefiting the Centre.

the Mukesh Ambani group wanted to thrash out differences over the terms and conditions of the gas supply master agreement (GSMA) drafted pursuant to the family agreement, but RNRL went to the government saying RIL management was not to be trusted as they were crooks and pleaded for formulation of a gas utilisation policy (GUP).

When a Bench comprising Chief Justice K G Balakrishnan and Justices R V Raveendran and P Sathasivam asked whether any party, RIL or RNRL, had challenged the GUP, Salve said none had ever questioned it in a court. “The net result is that the government is a gainer in this fight. RIL had marketing freedom of gas. It lost it once the GUP came about. And RNRL thinks the GSMA did not meet the intention of the family agreement, though we say that it has been substantially complied with,” Salve said.

Source: Economic Times

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Reliance Industries on Tuesday told the Supreme Court that it would lose money by selling natural gas at $2.34 per million British thermal units or mmBtu.

The company’s lawyer Harish Salve told the court that RIL had not told the Bombay HC that sale at $2.34 per unit would be profitable and that the HC appeared to have misunderstood the matter.

The hearing before India’s apex court was also marked by interjections by the justices. The judges observed that the natural gas belongs to the government and all contracts on sharing of gas are subject to the government’s approval. The court also said that it may issue a direction to the two feuding companies, RIL and RNRL, to arrive at a suitable arrangement. “Gas belongs to the government. Gas is national property,” said a three judge bench headed by Chief Justice KG Balakrishnan. CJI, Justice Balakrishnan speaking for the bench observed, ‘all contracts are subject to it (government’s ownership concept over gas).”

In the initial stages of court proceedings on Tuesday Salve explained the difficulty on arriving at an agreement with RNRL on supply of gas zeroing in on various aspects of the MoU, demerger and government’s gas utilization policy.

Salve said a contract between both the parties cannot be arrived at by using the agreement with NTPC as a template. The court then said, “There must be some parameters to arrive at a suitable agreement.”

Justice Raveendran speaking for the bench remarked, “What power is available to the court, if there is no suitable agreement. We will do two things. We will direct you to arrive at a suitable agreement or refer the issue to an arbitrator to pass an award.”

Salve, however said, any agreement between RIL and RNRL could be on the basis of the government’s gas utilization policy. The MoU could not be a basis for arriving of a suitable agreement, Salve said. RIL’s counsel will continue his arguments on Wednesday.

Source: http://economictimes.indiatimes.com

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Reliance Industries on Tuesday told the Supreme Court that it would lose money by selling natural gas at $2.34 per million British Thermal units or mmbtu.

The judges observed the natural gas belongs to the government and all contracts on sharing of gas is subject to the government’s approval. The court also said that it may issue a direction to the two feuding companies, RIL and RNRL, to arrive at a suitable arrangement.

“Gas belongs to the government. Gas is national property”, said a three-judge bench headed by chief justice KG Balakrishnan. The CJI, speaking for the bench, observed: “All contracts are subject to it (government’s ownership concept over gas).”

Source: Economic Times

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Drilling of the first exploratory well KGD9-A1 in the deepwater block KG-DWN-2001/1 (KG D9) has been concluded.

The well encountered sands in both the upper and lower Miocence target levels with some background gas. The data obtained from this first exploration parametric well is significant and will be integrated with the existing geological model to improve the understanding of the geology and petroleum system within the block before drilling subsequent wells. There is a commitment to drill 3 more wells in this block.

RIL remains committed to pursuing the exploration campaign within this block and will incorporate data and information from this well to upgrade the prospect inventory for drilling of three more wells. Any rumour of RIL surrendering this block is completely baseless and unsubstantiated.

Reliance Industries Limited is the operator and holds a 90 per cent participating interest in the block. Hardy, through its wholly owned subsidiary Hardy Exploration & Production (India) Inc., holds a 10 per cent participating interest.

Reliance Industries Limited

Reliance Industries Limited (RIL) is India’s largest private sector company on all major financial parameters with a turnover of Rs. 1,46,328 crore (US$ 28.85 billion), cash profit of Rs 22,365 crore (US$ 5.08 billion), net profit (excluding exceptional income) of Rs. 15,637 crore (US$ 3.02 billion) and net worth of Rs 126,373 crore (US$ 24.92 billion) as of March 31, 2009.

RIL is the first private sector company from India to feature in the Fortune Global 500 list of ‘World’s Largest Corporations’ and ranks 117th amongst the world’s Top 200 companies in terms of profits. RIL ranks 75th in the Financial Times FT Global 500 list of the world’s largest companies. RIL is rated as the 15th ‘Most Innovative Company’ in the World in a survey conducted by the US financial publication Business Week in collaboration with the Boston Consulting Group.

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Over Rs 21,000 crore investment in six new fertiliser plants, that would have raised India’s urea making capacity by 30 per cent, is stuck for want of natural gas, a senior government official has said.

Six companies “IFFCO, Kribhco, Chambal Fertilisers and Chemicals, Tata Chemicals, Indo Gulf Fertilizers and public sector Rashtriya Chemicals and Fertilizers (RCF)” have submitted proposals for setting up new urea plants, with 10 lakh tonnes capacity each, the official said.

“Since there is no commitment for assured supply of (feedstock) gas, these companies have not started the projects even after their boards’ approval,” he said.

Reliance Industries’ eastern offshore KG-D6 gas field is capable of meeting the entire feedstock requirement of 13.2 mmscmd of these plants, but allocation have not been made.

KG-D6 has a capacity to produce about 65 million standard cubic meters per day (mmscmd) of gas but is generating below 40 mmscmd gas for want of government nominated buyers.

The official said the government had previously given existing urea making plants the top priority for receiving KG-D6 gas when first 40 mmscmd output was alloted. Fertiliser firms want the new plants to also enjoy the same priority.

However, with the constitution of the Empowered Group of Ministers (EGoM) on gas, he said, the matter may be decided by the panel.

According to the proposals, these six firms would need 2.2 mmscmd gas each, which can be supplied from RIL’s KG-D6 basin. But they want a commitment from the government that they would receive the required quantity of gas after they complete their projects.

As per the proposals the new brownfield plants would be set up near the same site where existing units are located and each requires a capital investment of Rs 3,500-4,000 crore.

The official said if these projects come up, which may take three to four years to complete, India would increase the urea production by 30 per cent to 260 lakh tonnes from the current 200 lakh tonnes. “This will be the first major investment in urea after the new policy,” he added Since annual import at the current demand is about 60 lakh tonnes, there may be less dependence on overseas product even if urea requirement rises, he added.

Beside self sufficiency, the government also hopes to reduce fertiliser subsidy with increased domestic production, as the government assistance last year was over Rs 1,00,000 crore.

The high level of subsidy was due to rise in global prices and the government’s commitment to follow import parity for domestic producers.However, the subsidy level in 2009-10 fiscal is estimated to ease to Rs 55,000 crore as global prices softened.

Source: Press Trust of India

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After Satyam and RCOM, now NTPC a leading PSU is following the foot steps of such these companies. As per media reports NTPC has overstated its profits by 938 crore in 2007-08, the Comptroller and Auditor General of India (CAG) said in a report.

Whether there is material evidence of wrongdoing, the regulator’s probe in future will enlighten but there has been clear violation of corporate governance norms, “in spirit”

Earlier Anil Ambani-led Reliance Communications Ltd (RComm), the country’s second-largest mobile operator, also inflated its 2007-08 wireless revenues by Rs 2,915 crore to shareholders to hike its valuation, while simultaneously under-reporting the figures to telecom regulator TRAI, a special audit commissioned by the department of telecom has found.

Satyam cooked its books to show profits and kept the investors in the dark to show high valuation.

Indian companies needs to set high standards in corporate governance. India can’t take a backseat in corporate governance because the future belongs to India. The stakeholders of a company can no longer believe what is stated in the balance sheet. Investors are the worst hit in such circumstances.

India has a huge potential to involve retail investors in the stock markets but they are not coming out to invest because they have learnt a lesson from the Satyam Computer fraud and concerns over R-Com financial reporting transparency. Now NTPC disclosure will hurt sentiments of investors and the market. The important question to be asked – how long investors will have to go through this?

It might be just more than coincidence that NTPC notoriously shares a common thread with Reliance Communication issues of corporate governances but it has certainly raised eyes brows.

Reliance Industries on Wednesday said it is paying over $9 for buying liquefied natural gas from spot market as the government has not allowed use of fuel pumped by it for captive use, a company official said.

‘‘We are forced to pay more than what our gas would have cost us,’’ RIL president (oil and gas business) PMS Prasad told reporters here.

RIL buys about 10 million standard cubic meters per day of regassified-LNG from Petronet LNG Ltd and Royal Dutch/Shell—the nation’s only two LNG importers, for use in its refineries and petrochemical plants.

‘‘We need about 15 mmscmd (of gas). We get some gas from Panna/Mukta and Tapti fields (in western offshore) and the rest has to be met from spot LNG purchase,’’ he said.

Against the delivered price of RIL’s eastern offshore K-G D6 field gas of $6.5 per mmBtu at its plants in Gujarat, the spot-LNG is costing it $8.5-9 per mmBtu, he said.
The government has so far named customers in fertiliser, power, city gas, LPG and steel sector for the first 40 mmscmd of K-G D6 output and is yet to notify new users despite the production capacity crossing 65 mmscmd.

The company cannot sell gas to any of the users, including its own refineries, which are starved of fuel, unless allocation is approved by the government.

The government yesterday formed a ministerial panel led by finance minister Pranab Mukherjee to allocate natural gas from the company’s field to new users.

Source: financialexpress.com

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The company feels valuations are low and the demand would later rise

Mukesh Ambani, after completing the world’s largest oil refining complex at Jamnagar in Gujarat, has now set his eyes on owning refining assets in the US and Europe.
His Reliance Industries (RIL) has initiated preliminary discussions with US-based refiners such as Valero Energy Corp, Sunoco Inc and Flying J Inc for acquiring refineries, said sources in the know. Royal Dutch Shell’s three refineries in Europe are also on the Indian refiner’s radar, they added.
Two senior officials said RIL was gearing to acquire assets worth $3-4 billion (in the range of Rs 14,000-18,500 crore). Funds for acquisition will not be an issue, as it is sitting on a cash reserve of $5 billion (Rs 25,000 crore).
“As value depreciation is still very much an issue with refining assets in the US and Europe, RIL feels the timing is perfect for an acquisition. We are keen to have a global presence in refining, especially with some assets in the developed economies,” said an executive who did not wish to be named.
Last week, RIL senior Vice-President Maurice Bannayan said, “We are in advanced talks with looking at refinery and petrochemical units for acquisition in the US and Europe, mostly in the US.”
When asked, Valero spokesperson Bill Day said, “Valero has had its refinery in Aruba (in the Caribbean) available for sale since 2007, and we said we would aggressively seek strategic alternatives – which could include a sale – for our refineries in New Jersey and Delaware. Valero does not identify the parties that have expressed an interest in any of our properties.”
Virginia Parker, director of Marketing at Flying J, said: “We have no comment at this time. All matters surrounding sale of assets are subject to strict confidentiality requirements.” Sunoco officials declined to comment.
A RIL spokesperson said, “As a corporate policy, we do not comment on speculation.”
Many European petroleum giants have put their refineries on the block after a slump in demand for fuels and petrochemical products. These refineries are either running at lower profit margins or have shut, said a Mumbai-based analyst. However, RIL feels there are signs of recovery in these markets and once the financial situation improves, the demand would trek high.
After the crash of financial markets, Valero had cut costs at plants at Paulsboro in New Jersey and Delaware City and pursued “strategic alternatives” for them and the shuttered 235,000 barrels per day (bpd) Aruba refinery, Chief Executive Officer Bill Klesse said in a recent memo to employees. Previously, Valero, which operates 18 refineries throughout the US, Canada and the Caribbean, used the term strategic alternatives when it put a refinery up for sale.
The Paulsboro refinery is in the same New Jersey county as the refinery Sunoco is shutting. Sunoco recently announced plans to indefinitely shut its 145,000 bpd Eagle Point refinery at Westville in New Jersey, furlough 400 workers and halve its dividend, as the continuing recession hurts the US refiner’s profits.
Weak demand for refined products during the financial downturn, coupled with increased capacity, has pressured margins through the industry, and it is the right time for RIL to buy refineries at low cost, analysts said.
Big West Oil LLC, which has two refineries in the US, has halted taking deliveries after parent Flying J filed for bankruptcy. Big West’s Bakersfield refinery has a processing capacity of 68,000 bpd, according to data compiled by Bloomberg. Big West also has a 30,000 bpd plant in Salt Lake City.
Swiss-based refiner Petroplus said earlier this year it would sell its Teesside refinery in the UK by the end of June or turn it into a storage site if no buyer can be found. The 1,17,000 bpd plant stopped production in March 2009, when the company stopped buying crude for it.
Shell has been looking to sell its Harburg and Heide refineries in Germany for the past six months. In August, sources said India’s Essar Oil had given a bid for both refineries, as well as for Stanlow, Shell’s another refinery in the UK. Harburg has a capacity to process 110,000 bpd, while Heide can process 93,000 bpd. Stanlow has a capacity to process 267,000 bpd.
Other refineries up for sale in Europe include Italian firm Eni’s Livorno refinery and Swiss-based Petroplus’ Teesside refinery.
RIL is also eyeing the fuel retailing markets of the US and Europe, more than a year after it closed retail operations in India. Selling petrol directly in the US market could save the company a 5 to 10 per cent additional cost as traders’ commission, and the company has approached the US authorities for approval to start direct fuel sales.
Source: Business Standard
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