Chevron’s planned 2009 capital expenditure of $23 billion lists expenditure of $2.3 billion on its international downstream operations. Neither its press release nor its 2008 earnings call provided any clarity regarding its plans for Reliance Petroleum (RPL).
RPL’s current market cap stands at $7.8 billion. Chevron would require about $1.9 billion, at current prices, to pick up a further 24% stake in RPL. We believe its planned $2.3 billion capex on downstream international operations may not have this budgeted for.
The company’s press release on capex plans also emphasizes that international downstream expenditure would focus on upgrading its 50% owned South Korea refinery.
Chevron has the option to raise its stake to 29% through picking up an additional 24% stake from Reliance Industries (RIL) by July ’09. This is subject to Chevron executing certain agreements.
We forecast RPL to report a net profit of Rs41 billion in FY10, based on GRMs of $9/bbl and an 85% capacity utilization. Our target price for RPL is Rs100/share based on a long-term refining margin assumption of $10/bbl.