We visited Essar Oil’s refinery at Vadinar, Jamnagar. The CFO and the Senior Vice President and Head of Refineries presented a detailed overview of the refinery business.
Essar’s refinery has a nameplate capacity of 10.5mtpa and a low Nelson complexity of 6.1. Since commissioning in 1Q FY09, it has been operating in excess of 100% utilisation.
The company’s plans are on schedule to increase capacity from 10.5 mtpa to 14 mtpa by April 2009 and 16 by April 2011. Post expansion, the Nelson complexity will increase to 11.8.
Essar’s unique design facilities enable it to achieve superior margins. It owns the tallest distillation unit (CDU) in India, which allows it to achieve good swing capabilities and high quality.
Close proximity to Middle East and all weather port enable it to maintain a lower inventory of 30 days as opposed to 45 days for the public sector refiners. This allows for lower inventory losses, as evident in 3Q FY09.
Essar is ready to take up to 40,000 bpd of Cairn’s Mangala crude oil. It is currently in talks with Cairn on the pricing of the crude. The proposed use of Cairn’s waxy crude from the nearby Mangala field and cheaper natural gas from Gujarat State Petronet will allow for lower costs.
The company plans to invest $140 million in upstream exploration in its assets overseas over the next four years. Investments will be made in the Vietnam block and the two newly acquired offshore blocks in Australia.
Essar proposes to invest $60 million in the gas-bearing offshore block-114 in Vietnam’s Song Hong basin and $65 million in the two shallow-water blocks in Bonaparte basin in Northern Australia.
It has total outstanding debt of Rs93 billion; of the total, priority debt is Rs30 billion, for which repayment starts in 2010 and which has to be paid before 2014. It will take additional debt of Rs46bn from the Indian banks for funding its capacity expansion plan.
Essar is poised to report improved earnings as oil prices have improved and hence inventory losses are unlikely.