Reliance Petroleum Limited Type Public (BSE: 532743) Industry Petroleum and Gas Founded 2008 Headquarters Ahmedabad, India Key people Mukesh Ambani Products Petroleum Revenue 3,678.00 crore (US$665.72 million) Parent Reliance IndustriesReliance Petroleum Limited (BSE: 532743) was set up by Reliance Industries Limited (RIL),one of Indias largest private sector companies based in Ahmedabad. Currently, RPL issubsidiary of RIL, and has interests in the downstream oil business. RPL also benefits from astrategic alliance with Chevron India Holdings Pvt. Limited, Singapore, a wholly ownedsubsidiary of Chevron Corporation USA (Chevron), which currently holds a 5% equity stake inthe Company.COMPANY HISTORYReliance Petroleum Limited (RPL), a Mukesh Ambani led Reliance Group company was set upto harness an emerging value creation opportunity in the global refining sector by RelianceIndustries, one of the Indias largest private sector company with a significant presence across theentire energy chain and a global leadership across key product segments. Currently, RPL issubsidiary of RIL.RPL was formed to set up a Greenfield petroleum refinery and polypropylene plant in theSpecial Economic Zone (SEZ) at Jamnagar in Gujarat. This global sized, highly complexrefinery is being located adjacent to RILs existing refinery and petrochemicals complex, whichis amongst the largest and most efficient in the world, thus offering significant synergies.
The commissioning of the RPL refinery catapults Reliance into the league of the largest refinersglobally, both in terms of complex refining capacity and earnings potential. With the completionof the RPL refinery, Jamnagar has emerged as the „Refining Hub of the World‟ with the largestrefining complex with an aggregate refining capacity of 1.24 million barrels of oil per day in anysingle location in the world.The state-of-the-art, globally competitive RPL refinery has been completed in 36 months fromconcept to commissioning, which is a new benchmark for building a grass-root refinery of thisscale and complexity. This refinery has been built with a significant capital cost competitiveadvantage. This record has been achieved in spite of the significant shortfall in engineering andconstruction resources that has impacted most other refinery projects globally. RPL achieved themilestone by leveraging the project management skills of the Reliance group together withworld-class implementation partners like Bechtel, UOP and Foster Wheeler amongst others.The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is Indias largest privatesector enterprise, with businesses in the energy and materials value chain. Groups annualrevenues are in excess of $ 34 billion. The flagship company, Reliance Industries Limited, is aFortune Global 500 company and is the largest private sector company in India.The Groups activities span exploration and production of oil and gas, petroleum refining andmarketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles andretail.Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibreproducer in the world and among the top five to ten producers in the world in majorpetrochemical products.The Group exports products in excess of US$ 20 billion to 108 countries in the world. MajorGroup Companies are Reliance Industries Limited (including main subsidiaries ReliancePetroleum Limited and Reliance Retail Limited) and Reliance Industrial Infrastructure Limited.On March 2, 2009 the Boards of Directors of Reliance Industries Limited (RIL) and ReliancePetroleum Limited (RPL) unanimously approved RPL‟s merger with RIL, subject to necessaryapprovals. The exchange ratio recommended by both boards is 1 (one) share of RIL for every 16
(sixteen) shares of RPL. RIL will issue 6.92 crore new shares, thereby increasing its equitycapital to Rs 1,643 crore.On April 13, 2009, the shareholders and the creditors of Reliance Petroleum Limited (RPL)approved the Scheme of Amalgamation of RPL with Reliance Industries Limited (RIL).Points given in the favour of mergerThe merger will unlock significant operational and financial synergies that exist between RILand RPL. It creates a platform for value-enhancing growth and reinforces RIL‟s position as anintegrated global energy company.The merger will enhance value for shareholders of both companies. The merger is EPS accretivefor RIL. Through this merger, RIL consolidates a world-class, complex refinery with minimalresidual project risk, while complementing RIL‟s product range. There will be further gains fromreduced operating costs arising from synergies of a combined operation.SWOT ANALYSIS“SWOT is an acronym for the internal Strengths and Weaknesses of a firm and theenvironmental Opportunities and Threats facing that firm. SWOT analysis is a widely usedtechnique through which managers create a quick overview of a company‟s strategic situation.The technique is based on the assumption that an effective strategy derives from a sound “fit”between a firm‟s internal resources (strengths and weaknesses) and its external situation(opportunities and threats). A good fit maximizes a firm‟s strengths and opportunities andminimizes its weaknesses and threats. Accurately applied, this simple assumption has powerfulimplications for the design of a successful strategy.”
Strengths, Weaknesses, Opportunities and Threats (SWOT) Location of TYPE OF FACTOR Factor Favorable Unfavorable Internal Strengths Weaknesses Leading market position Increasing long term debt Operational efficiency in Problem with the FCCU refining Strong financial performance External Opportunities Threats Joint venture with NOVA Intense domestic competition Chemicals Rising petrochemical supply in Acquisition of polyester the Middle East assets of Hualon Corporation Fluctuating crude oil prices Increasing demand for Economic slowdown in India transportation fuels Growing demand for petroleum products
Porters 5 Forces AnalysisThreat of New Entrants. There is thousands of oil and oil services companiesthroughout the world, but the barriers to enter this industry are enough to scare away allbut the serious companies. Barriers can vary depending on the area of the market inwhich the company is situated. For example, some types of pumping trucks needed atwell sites cost more than $1 million each. Other areas of the oil business require highlyspecialized workers to operate the equipment and to make key drilling decisions.Companies in industries such as these have higher barriers to entry than ones that aresimply offering drilling services or support services. Having ample cash is another barrier- a company had better have deep pockets to take on the existing oil companies.Power of Suppliers. While there are plenty of oil companies in the world, much of the oiland gas business is dominated by a small handful of powerful companies. The largeamounts of capital investment tend to weed out a lot of the suppliers of rigs, pipeline,refining, etc. There isnt a lot of cut-throat competition between them, but they do havesignificant power over smaller drilling and support companies. [Ibid]Power of Buyers. The balance of power is shifting toward buyers. Oil is a commodityand one companys oil or oil drilling services are not that much different from anothers.This leads buyers to seek lower prices and better contract terms. [Ibid]Availability of Substitutes. Substitutes for the oil industry in general include alternativefuels such as coal, gas, solar power, wind power, hydroelectricity and even nuclearenergy. Remember, oil is used for more than just running our vehicles, it is also used in
plastics and other materials. When analyzing an energy company it is extremely important to take a close look at the specific area in which the company is operating. Also, companies offering more obscure or specialized services such as seismic drilling or directional drilling tools are much more likely to withstand the threat of substitutes. Competitive Rivalry. Slow industry growth rates and high exit barriers are a particularly troublesome situation facing some firms. Until quite recently, oil refineries were a particularly good example. For a period of almost 20 years, no new refineries were built in the U.S. Refinery capacity exceeded the product demands as a result of conservation efforts following the oil shocks of the 1970s. At the same time, exit barriers in the refinery business are quite high. Besides the scrap value of the equipment, a refinery that does not operate has no value-adding capability. Almost every refinery can do one thing - produce the refined products they have been designed for.Value Chain Analysis Oil and Gas Value Chains