Oil & Gas:
High oil and gas prices have led to a significant momentum in the E&P industry globally. Despite challenges in discoveries of new reserves, E&P companies world over are using their strong cash flows in investing sizably in their exploration initiatives along with exploiting current production levels. This has in turn led to a spurt in E&P activities resulting in tight rig availability and increased rig rentals, coupled with increase in cost of related services.
As a forerunner in the E&P sector in India, the Company's business strategy is aimed at enhancing vertical integration in its energy business and capturing the value across the entire energy chain. The Company's oil and gas business provides a strong commitment towards strengthening India's energy security.
The Company is the largest exploration acreage holder among the private sector companies in India with 34 domestic exploration blocks covering an area of about 331,000 sq kms. The Company also has 5 coal bed methane blocks in India covering an area of about 4,000 sq kms. Additionally, the Company also has interests in one exploration block each in Yemen, Oman and East Timor.
Processing and interpretation of acquired seismic and other data continues to be amongst the key initiatives at the Company's E&P business. Advance techniques such as multi-beam and electromagnetic surveys are conducted in order to unveil the potential existence of hydrocarbons.
During the period under review, two exploratory wells were drilled during the period in block SR-01 and block KGIII5 with drilling depth of 4,600 meters and 3,904 meters respectively. Two hydrocarbon zones in SR01 and in KGIII5 were encountered during drilling and the same have since been notified to Director General of Hydrocarbons.
In order to further strengthen the prospects of its E&P business, the Company has bid for 21 blocks in the recently concluded NELP VI. This round of bidding witnessed high level of participation by leading international players, demonstrating India's potential in the hydrocarbon business. Results of this round of bidding are expected to be announced by the end of October 2006.
The development of Dhirubhai 1 & 3 discoveries of KGD6 is progressing as per plan. Orders for all critical long lead items for offshore and onshore installations have been awarded. Field engineering update for Onshore Terminal has been completed and detailed engineering is progressing on schedule. Site filling for the Onshore Terminal and infrastructure area has been completed and construction work is also under progress. Drilling of 4 development wells is slated to commence later this year.
The development plan envisages initial plateau production of 40 MMSCMD from KGD6 with the provision of modular expansion to address potential discoveries. Options for higher plateau production from the area are being evaluated on the basis of an upside potential in the Block. This initiative entails implementing one of the world's largest deep-water gas development projects.
The Panna-Mukta blocks produced 804,513 MT of crude oil and 707 MMSCM of natural gas during the first half of FY 2006-07.
Production from Tapti was at 49,822 MT of condensate and 942 MMSCM of natural gas during the same period. Production in these blocks was hampered in August 2006 due to floods in ONGC's facility at Hazira.
The expansion plan (EPOD) at the Panna-Mukta Block is on schedule and is aimed at increasing production to 6.2 MMSCMD of gas and 52,000 BOPD of oil. Installations of platforms and in-field pipelines have been successfully completed with the remaining development work to be completed in 2007.
The Revised Plan of Development (NRPOD) for the Tapti block which is aimed at incremental recovery of 5.7 MMSCMD of gas is also progressing on schedule. All major contracts are being awarded and the project is planned to go on stream in 2007.
The exploration program in the CBM blocks of the Company is also progressing as per plan. Gas in place estimates of 3.65 TCF at the Sohagpur East and West blocks have been concurred by the Director General of Hydrocarbons. Preparation of the development plan is in progress and efforts are on to produce CBM by 2009 for the first time in India.
The development plan for the block in Yemen was approved by the concerned Ministry. Drilling of development wells is under progress.
In the block in Oman, a seismic vessel for 2D and 3D acquisition was mobilized and data acquisition has commenced.
Additionally, the Company was awarded one deepwater offshore block in East Timor Leste and the PSC is expected to be signed in 2007.
Refining & Marketing (R&M):
During the first half of FY 2006-07, domestic demand for petroleum products increased by 2.2%.
The consumption of HSD, which accounts for more than a third of the total consumption of petroleum products, registered a growth of 6.7%. Demand for LPG increased by 2.3%, MS increased by 6.4% against the corresponding period of the previous year. The demand for ATF was strong and registered an increase of 25.8%. On the other hand, consumption of Naphtha reduced by 13% due to replacement by lower priced Natural Gas and higher hydel power generation.
During the same period, the average prices of WTI, Brent and Dubai were $ 70.5 per barrel, $ 69.7 per barrel and $ 65.5 per barrel respectively while the peak prices for the same period were at $ 77.0 per barrel, $ 78.7 and $ 72.3 per barrel respectively.
The International Energy Agency has projected a world oil demand growth of 1.1 million b/d in 2006.
Factors such as improved global refining utilization, lower turnaround rate, end of peak driving season in US and continued fuel switching in China and US, led to a fall in refining margin across all regions. Singapore complex margin for the period July to September 2006 averaged at US$ 4.75 per barrel as compared to US$ 8.13 per barrel in corresponding period last year.
The Company's EBIT margin for refining business declined to 6.4% in Q2 FY07 from 8.2% last year. At the absolute level, the EBIT was lower by 3% at Rs 1,489 crore. EBIT margin was lower primarily due to softening of GRM for the quarter which declined to US$ 9.1 / bbl in Q2 FY07 from US$ 10.4 / bbl in the corresponding previous period. The Company's complex refinery is uniquely positioned to benefit from scenario of high light - heavy differential.
On a half-year basis, refining EBIT increased to Rs 3,524 crore, an increase of 6% over the corresponding previous period. However, the EBIT margin for the refining business declined to 8.0% in H1 FY07 as compared to 9.6% in the corresponding previous period.
Reliance's refinery achieved capacity utilization of 94.9% and processed 15.7 million tonnes of crude. This utilization rate compares favorably with those for other refineries, both in India and abroad, at 88% for North America, 85% for Europe, and 86% in the Asia Pacific region.
Exports of refined products increased to 8.76 million tonnes as compared to 5.18 million tonnes last year. Exports of refined products contributed to revenues of US$ 5.5 billion. This demonstrates the superior capability of the Company's world class refinery that can cater to the global markets.
In the domestic market, prices at the retail fuel stations remained unchanged thereby leading to under-recovery for private players. Lack of a level playing field in terms of preferred treatment to the Government-owned Oil Marketing Companies necessitated the Company's decision to increase prices in order to reflect the true crude price scenario. The Company has made a representation to the Government to ensure a level playing field for private marketing companies.
As a result of higher pricing, the Company lost its market share in the retail business. Owing to substantial decline in off take, the Company also offered a support scheme to its dealers to tide over the prevailing situation.
With recent moderation in international crude prices, the Company has reduced the differential in retail selling prices compared to Government-owned Oil Marketing Companies. The Company would explore all measures to protect full capacity utilization until such time a level playing field is achieved.
The Company continues to benefit from its unique positioning as a fully integrated, globally competitive petrochemical producer.
In the petrochemicals business segment, the Company's EBIT margin improved significantly to 16.2% in Q2 FY07 from 15.7% last year. At the absolute level, the EBIT was higher by 38% at Rs 1,764 crore, a record performance. Within the petrochemicals business, polymer products and fibre intermediates witnessed strong margins on account of lower naphtha cracks for most part of the quarter. This was partially offset by lower margins in the polyester business due to high fibre intermediate prices.
On a half-year basis, Petrochemicals EBIT increased to Rs 2,851 crore, an increase of 32% over the corresponding previous period. However, the EBIT margin for the petrochemicals business declined to 13.8% In H1 FY07 as compared to 14.6% in the corresponding previous period.
In August 2006, some plants at the Company's Hazira complex had to be shut down due to flooding in the Tapi River. In addition to production loss of 63,000 tonnes, there was an additional cost of Rs 34 crore (US$ 7 million). The same has been included under the "Other Expenditure" section.
The recent commissioning of an additional polyester capacity of 550,000 tonnes per year makes Reliance the world's largest producer of polyester fibre and yarn with a combined capacity of 2 million tones.
Domestic demand for polyester registered a growth of 7% during the first half of the year. Demand growth was adversely affected by floods in major consumption centers and volatile raw material prices.
During the half-year, production volumes of PFY, PSF and PET increased by 32% to 725,000 tonnes. The recently commissioned polyester facilities are operating at high utilization rates and production is being absorbed in the domestic and international markets. Reliance has a domestic market share of 57% in polyester products (PFY, PSF and PET).
Reliance has maintained its focus on specialty products. Niche products constitute 57% of its PSF production and 32% of its PFY production. With the integration of Trevira, Reliance now has the most diversified portfolio globally in polyesters across commodity, specialty and niche products.
Production of PX, PTA and MEG, at 1,943,000 tonnes increased by 20% compared to corresponding period of the previous year. In July 2006, the Company commissioned a 730,000 tonnes per annum PTA plant at Hazira. Commissioning of integrated polyester and PTA plants is timed in line with growing demand.
Reliance is one of the world's largest manufacturers of polyester intermediates. Reliance is world's 3rd largest producer of PTA, 4th largest producer of PX and the 5th largest producer of MEG. Reliance's share in the domestic market for fibre intermediates (PX, PTA and MEG) stood at 82% collectively.
Reliance is India's largest producer of polymers (PP, PE and PVC) having a market share of 45%. Reliance is the world's 7th largest producer of PP.
The domestic demand for polymers grew marginally by 1% primarily on account of higher prices. Declining polymer prices towards the end of the second quarter resulted in downstream processors adopting a 'wait and watch' approach leading to a lower off-take by the end of the quarter.
Production volumes of PP, PE and PVC increased by 7% to 1,032,000 tonnes primarily due to expansion of its PP capacity. During the half-year, Reliance produced 389,000 tonnes of ethylene, representing a decrease of 8% over corresponding previous period and 187,000 tonnes of propylene, representing a decrease of 7%. The decrease in production was due to the planned shut down of cracker plant during the half-year under review.
Production of Linear Alkyl Benzene (LAB) at 61,500 tonnes was higher by 10% compared to the corresponding period of the previous year. Reliance's market share in LAB stood at 26%.
The Butadiene plant at Hazira produced 44,500 tonnes during the first half of the year.
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