Essar Oil posted net profit of Rs 30 crore during the June 2008 quarter on net sales of Rs 8,950 crore as the gross refining margins (GRM) stood at $15.5 a barrel. Its 10.5-million tonne per annum (mtpa) refinery commenced commercial operations from May 1, 2008, and processed a little over 2 million tonnes of crude oil by the end of June 2008. Since the commercial production has started recently, the results are not comparable with previous periods.
Despite healthy GRM, the company’s profit got eroded due to Rs 217 crore write-off on account of derivative losses. The company also provided for Rs 102 crore for forex fluctuations. Beginning this quarter, the company started charging depreciation (Rs 115 crore) and interest costs (Rs 169 crore), which were capitalised earlier.
The oil major maximised production of diesel and aviation fuel to 48% of the total production. Nearly 70% of the company’s sales came from domestic market, where it has signed long-term agreements with BPCL and HPCL. The company has embarked upon an ambitious project to increase its refining capacity from current 10.5 mtpa to 34 mtpa by the end of 2010. Going forward, EOL’s refining margins are likely to decline from the current levels, in line with the industry trend. The refinery stands at 6 on Nelson’s complexity index, which indicates that its ability to handle dirty crude is limited and so is its ability to manipulate its product basket. This will restrict its refining margins to around $7-8 a barrel level for FY09, putting pressure on its operating profits compared to the current level.
Despite healthy GRM, the company’s profit got eroded due to Rs 217 crore write-off on account of derivative losses. The company also provided for Rs 102 crore for forex fluctuations. Beginning this quarter, the company started charging depreciation (Rs 115 crore) and interest costs (Rs 169 crore), which were capitalised earlier.
The oil major maximised production of diesel and aviation fuel to 48% of the total production. Nearly 70% of the company’s sales came from domestic market, where it has signed long-term agreements with BPCL and HPCL. The company has embarked upon an ambitious project to increase its refining capacity from current 10.5 mtpa to 34 mtpa by the end of 2010. Going forward, EOL’s refining margins are likely to decline from the current levels, in line with the industry trend. The refinery stands at 6 on Nelson’s complexity index, which indicates that its ability to handle dirty crude is limited and so is its ability to manipulate its product basket. This will restrict its refining margins to around $7-8 a barrel level for FY09, putting pressure on its operating profits compared to the current level.
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