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Essar Oil hit by a steep fall in crude-oil prices

Essar Oil 3Q Net Loss Narrows To INR2.26 Billion

January 23, 2010: 01:40 AM ET


NEW DELHI -(Dow Jones)- India’s Essar Oil Ltd. (500134.BY) late Friday said its fiscal third-quarter net loss narrowed to INR2.26 billion from a loss of INR12.30 billion a year earlier.

“This has been a tough quarter for the oil industry in general and Essar Oil has also felt the pressure of thin refinery margins,” said Naresh Nayyar, managing director of the company.

“However, with our refinery operating well above the installed capacity and signals of refining margins firming up, we expect to build on our inherent strengths and core competence to steer the company towards profitability growth during the current financial year.”

Essar Oil, which owns 6% of India’s total installed refining capacity, operates a 210,000-barrel-a-day refinery on the West coast of India.

Essar Oil was hit by a steep fall in crude-oil prices by 54% in the year- earlier period leading to inventory losses as the rupee fell against the dollar.

Essar Oil’s gross refining margins, or GRM, the difference between the cost of crude and earnings on refined products, stood at $2.21 a barrel. The company didn’t provide GRM for the year-earlier period. Its GRM was $2.26 a barrel in the October-December quarter of the previous fiscal year, a year-earlier statement showed.

Refinery runs for the October-December period rose 9.3% to 3.51 million metric tons from 3.21 MMT in the corresponding quarter of last fiscal.

Essar’s bigger rival, Reliance Industries Ltd. (500325.BY), on Friday beat market estimates with a 14.5% rise in third-quarter net profit. However, the company’s GRM fell to $5.90 a barrel for the latest third quarter from $10 a barrel a year earlier.

Essar’s net sales for the third quarter rose 20% to INR114.21 billion on-year, the company said.

Essar’s refinery is operating at 280,000 barrels a day, at a capacity utilization rate of more than 133%, it said.

Essar is ready to supply fuel compliant with tighter emission norms, or Bharat Stage III and Bharat Stage IV norms, which are equivalent to Euro-III and Euro- IV. The refiner said Euro-III high-speed diesel output has started while Euro- III gasoline and Euro-IV high-speed diesel production will start in the January- March quarter.

The new emission norms, or Bharat Stage-IV emission rules, were established under India’s National Auto Fuel Policy to regulate the emission of harmful pollutants from vehicles.

Essar’s sales in the local market rose 20% during the April-December period of the current fiscal through March 31 to 6.76 MMT from 5.74 MMT a year earlier, it said. “The major customers were the state-run marketing companies, the company’s own retail network as well as the direct industrial customers,” it said.

The company currently operates 1,293 retail outlets across India, it said.

Essar is expanding its existing refinery at Vadinar in the western state of Gujarat to 720,000 barrels a day in two phases. The first phase, which is expected to be commissioned by March next year, will ramp up the refining capacity to 360,000 barrels a day.

The company plans to raise capacity by another 360,000 barrels a day in the second phase of expansion which will likely be completed by March 2013, the company said.

“About 28% of total construction is completed so far. Overall progress for the refinery expansion project is 41%,” it said.

Essar, which plans to have a refining capacity of one million barrels a day, is in talks to buy three European refineries from Royal Dutch Shell PLC (RDSB, RDSB.LN). In July, Essar acquired a 50% stake in 80,000-barrel-a-day Mombasa- based Kenya Petroleum Refineries Ltd. from Shell, Chevron Corp. (CVX) and BP PLC (BP).

-By Rakesh Sharma and Nikhil Gulati, Dow Jones Newswires; +91-11-4356-3306; [email protected]

(END) Dow Jones Newswires

01-23-10 0140ET

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