Essar Oil is back in the black with a Rs 130-crore profit for the second quarter. The company has seen a jump in retail business following petrol decontrol and is embarking on the expansion of retail outlets. It is set to become the biggest retail operator in the private sector, surpassing RIL’s 1,430 outlets. In an interview with Ajay Modi, Managing Director Naresh Nayyar expressed bullishness on the retail business and the next round of the oil & gas block auction. Edited excerpts:
The company has performed well in the recent quarter on better GRMs. What does the current quarter look like?
Overall performance in the current quarter can only be evaluated at the end of the quarter, since financial and operational performance of a refinery hinges on several factors that are subject to frequent changes. Hence, it is premature to comment.
How has the petrol decontrol impacted your retail operations? What kind of pricing strategy is the company following vis-a-vis the public sector companies in petrol and diesel pricing?
Our retail sales have grown substantially following the deregulation in June. In the second quarter of the current year, sales through the retail outlets increased to Rs 752 crore from Rs 536 crore last year on account of more than 58 per cent growth in petrol sales. For petrol, we have on-par pricing in most states. The few states where differential pricing was introduced after the deregulation are typically those where the company incurs high transportation costs. We continue to price diesel based on international crude prices.
What is the retail expansion plan for the current year? What is the long-term view on retail operations, considering that diesel continues to be regulated?
We continue to expand our retail network; we added 36 outlets in the last quarter, taking the number to 1,376. An additional 195 new outlets are in various stages of construction. The company is on target to have 1,700 outlets by March 2011. While deregulating petrol, the government gave a clear message that diesel will follow suit. We believe it is only a matter of time before this is implemented.
Is the company weighing shale gas opportunities overseas?
We will consider oil & gas assets that add value to our Exploration and Production portfolio.
India has a surplus refining capacity, which is likely to expand further in the years to come. What implications does it have for companies such as yours?
While in the near term, the refining capacity will be in surplus because of several PSU refineries also being commissioned, we see a substantial upswing in the Indian demand for petro products, especially diesel, by 2015-16. This is why India will remain our anchor market. However, we will continue to export a small proportion of our higher value products that don’t have a ready market in India.
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The city gas business is set for expansion in India. Is Essar Oil evaluating city gas opportunities, considering the company’s ownership of five CBM acreages?
Essar Oil is developing a pipeline network in Durgapur city to facilitate CBM gas distribution from the Raniganj block to the Assansol-Durgapur area. Construction of the pipeline, as well as the gas gathering and compression infrastructure, is in full swing and the commissioning is expected soon.
What is the update on the second-phase refinery expansion to 36 million tonnes?
The second phase of expansion is under consideration. It will double capacity from the 375,000 barrels per day post Phase I to 750,000 bpd. This will be done by adding a second train of the Phase I units. Complexity will also be enhanced to 12.8, which will translate to an even larger proportion of higher value products. However, a decision on when we will initiate and commission the Phase II expansion will be taken after securing all the financial commitments and a review of the market conditions.
What will be the company’s strategy in the ninth round of Nelp?
We have been active in the previous Nelp rounds and some blocks in our current portfolio were won during these auctions. We are keenly looking forward to Nelp-IX. We welcome the announcement that companies that bid under Nelp-IX will be allowed to retain acreage until the end of a seven-year exploration period for shallow water and onshore blocks and an eight-year exploration period for deep-water blocks. We have also been given an indication that the PSCs which will be signed for these blocks will be based on the Direct Tax Code. We are keen to build a strong global E&P portfolio. Besides serving as a natural hedge to the cyclicality of the refining business, it will consolidate our position as an integrated oil & gas player. We continue to look at oil & gas blocks globally that have good reserve potential and where we can participate as an equity shareholder. That said, little is known currently about the prospects of the blocks being offered in Nelp-IX. We will take a decision only after these details are available and after thoroughly evaluating the prospects.
