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Sunday, November 8, 2009

Essar Oil Ltd:Future growth prospects and outlook,buy/sell/hold,latest news,results and analysis.recomendation and updates

Scripscan:Essar Oil Ltd

Story:Essar Oil’s results for the September ‘09 quarter were important not for its quarterly numbers but more for the update on its various projects. The major amongst them is the progress on its wholly owned coal bed methane (CBM) block atRaniganj.The block, which is currently estimated to yield one trillion cubic feet of natural gas over its working life of 25 years, will start producing by end-March ‘10. This translates in cumulative earnings of Rs 20,000 crore over its lifetime or an annual average revenue of Rs 800 crore, assuming $4.2 per unit gas price. The company is currently preparing its development plan for the CBM block that envisages drilling 500 wells and deployment of innovative drilling techniques, which will be followed by financial closure by December ‘09. The company will also have to lay a 160-km pipeline to take the gas to its main consumption centre Kolkata.The company also continues with its aggressive plan to expand capacity of its refinery on the west coast to 34 million tonnes in the next two years from current 10.5 MTPA. Financing of $1.5 billion has been tied up for the first phase, which will take the capacity to 16 MTPA by December ‘10. Another 18-MTPA expansion at the cost of $4.4 billion is scheduled for December ‘11.In the expansion process, the index of a refinery’s quality - as referred by Nelson’s Complexity Index - would also double. This means the refinery would be able to produce fuels meeting most stringent Euro IV / V norms, eliminate low-value products such as fuel oil, and increase production of high-value products like petrol.Apart from the organic growth, the company is actively pursuing acquisitions in the refining business. The company has already bought 50% stake in a 4-MTPA refinery in Kenya and is discussing with Shell to buy out its three European refineries with a combined capacity of 23 MTPA. The company, which sold over 0.62 million tonnes of fuel through its 1,278 retail outlets in the first half of FY09, is expanding its network to 1500 outlets by end FY10. Provided all its plans succeed, Essar Oil could emerge as a global petroleum major within the next few years.Have a close watch on this counter folks,could be a multibagger in the longer run.

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