Essar Oil – Analysts’ Meet – May, 2008
Strictly Private & Confidential Confidential Disclaimer
2 Confidential Table of Contents
¾ Essar Group Overview ¾ Essar Oil Limited Refining Business Overview Exploration & Production Business Marketing and Distribution Business
¾ Market Overview & Operation Performance
¾ Refining Expansion Rationale Project parameters Project Cost & Financing ¾ Management Team
3 Essar Group Overview Confidential
Essar: Amongst the Leading Indian Business Houses
Essar Global Limited
Essar Essar Essar Steel Essar Energy Essar Essar Shipping & Communications Power Holdings Holdings Limited Holdings Limited Projects Limited Logistics Limited Holdings Limited Limited
Essar Steel Essar Oil Vodafone Essar Essar Power / Bhander Essar Construction Essar Shipping Power Existing 45 million subscribers 4.6 MTPA Integrated Refining 1015 MW combined ▪ Engineering Fleet of 24 vessels, Steel Plant (‘ISP’) Telecom Tower & cycle ▪ Fabrication DWT of 1.3 mn Refinery Complex - 10.5 Infrastructure Expansion Essar Steel - Hazira ▪ Construction Vadinar Oil MMTPA Essar Power (MP) 3,000 towers Terminal 4 MTPA ISP * Limited – 1200 MW Expanding capacity to Fully geared to execute Terminal facility of 33 Essar Steel Orissa Essar Telecom Retail Essar Power (Gujarat) 34 MMTPA turnkey EPC jobs in MMTPA – Liquid Cargo 6 MTPA Pellet Plant* Chain of over 750 retail Limited – 1200 MW India and Overseas being expanded to 96 outlets Oil Retail Marketing Essar Power MMTPA Algoma Steel, Canada Aegis - BPO Jharkhand Limited – Global Supplies Essar Oilfields 4.0 MTPA ISP 1274 Retail Outlets 1200 MW (UAE)FZE Amongst the largest Global procurement A drilling company with Exploration & BPO’s in India, with 9 (2) 13 rigs Minnesota Steel, US Vadinar Power company •6 MTPA Pellet Plant* Production Blocks: centers in India and 9 •1.4 biliion tonnes Iron centers in USA • Power Generation Essar Logistics ▪ Ratna, India Capacity of 77MW Ore Reserves BPL Mobile Owns and operates ▪ Mehsana, India being expanded to transshipment assets P T Essar Indonesia ▪ Raniganj, India 1 Million subscribers 1200 MW in two 0.4 MTPA cold rolling ▪ Assam phases. Essar Bulk Terminal Complex (1) Kenyan Mobile ▪ Madagascar License Dry bulk port facilities (1) Essar Steelhypermart ▪ Nigeria ▪ Vietnam(1)
(1) Under transfer (2) In the process of owning a majority stake of upto 74% * Projects under implementation 5 Confidential With A Long-Term Growth Vision For The Energy Sector
Setup Indian retail network of 5,000 outlets and establish footprint in important export markets
Significant Presence throughout hydrocarbon value-chain
Crude Oil - 30% of refining capacity Gas – 100% of group feed stock requirement Target refining capacity – 1 million bpd with state of the art technology
Vision to be a fully integrated energy group with global footprint 6 Confidential Essar Oil Limited – An Integrated Energy Company
Essar Energy Holding Limited
Essar Oil Limited
Exploration & Refining Marketing & Distribution Production Network Blocks
Existing (EOL) Essar Oil Vadinar Ltd. • Develop & Maintain well Essar Exploration & spread out distribution Indian Production Limited network (Mauritius)* • Presently 1274 retail • 10.5 MMTPA • Capacity Expansion outlets Refinery Train 2 – 16 to 34 • 7 Terminals & 9 Depots •Ratna • Capacity Expansion MMTPA (Train – II) •Mehsana from 10.5 to 16 EEPL - Nigeria • Madagascar MMTPA (Train-I) • Raniganj •Vietnam • Assam •Nigeria Block
* Under transfer
7 Essar Oil: Refining Business Overview Confidential Strategically Located World Class Refinery
Operational Highlights ● Commenced Commercial Production (from May 1, 2008) and operating at well above rated capacity of 10.5 mmtpa ● Designed as a cracking refinery utilising FCC as major conversion technology with complexity of 6.1 ● Location advantage at Vadinar, Gujarat ● Internationally acclaimed technology from process licensors (ABB- Lummus, Axens, Shaw Stone & Webster, Stork Comprimo, Merichem) ● Currently producing Euro II/III Products, processed about 67 million barrels of crude till 30/4/08 ● Significant tax benefits – Income Tax & Sales Tax ● Home market demand (PSU and private refiners) providing strong market for our products
Domestic Demand Customers
Vadinar Euro II / III Markets Globally
Suppliers
Refinery is up and running with key captive infrastructure in place 9 Confidential
Existing Refinery – Configuration
Commissioning S.N. UNIT MMTPA Technology Licensor Date (Trial)
1 Crude & Vaccum Distillation Unit Open Art November, 2006 (CDU)/ (VDU) 10.5 /7.2 (ABB Lummus)
2 Visbreaker Unit (VBU) Axens, France January, 2007 1.9
3 Naphtha Hydrotreating Unit (NHT) Axens, France February, 2007 1.6
4 Continuous Catalytic Reformer (CCR) Axens, France February, 2007 0.9
5 Fluid Catalytic Cracking Unit (FCCU) Shaw – Stone & Webster, December, 2007 2.9 USA
6 Diesel Hydrodesulphurisation Unit Axens, France January, 2008 (DHDS) 3.7
7 Amine Regeneration Unit ABB December, 2007 2.02
8 Sulphur Recovery Unit Jacobs February, 2008 422 tpd
10 Confidential
Refinery Trial Run Operations
● Processed about 67 mln barrels of crude since inception
● Processed about 21 types of crude with a wide variety of assays: Gravity, Sulphur content & TAN
● No unplanned outages of the Crude Unit.
● Secondary Units ( FCCU, DHDS, Sulphur Block ) are operating stably beyond name plate capacity.
● Utilities have operated reliably throughout the period and have supported the increase in throughput.
● Dispatch facilities have ensured smooth evacuation of products even at higher rates
● Lost Time Injury Frequency Rate during first year was 0.2 per million hours, which is world class.
Refinery currently operating at 12.5 MMTPA
11 Confidential
Tax Benefits
¾ Income Tax Benefit 100% income-tax exemption on refinery profits for 7 years under section 80-IB
¾ Sales Tax/ VAT Deferral Benefit Gujarat High Court vide its Order dated April 22, 2008 has restored the benefits by extending the time limit for production to 02/04/2007 Further GHC directed that the following conditions shall be stipulated provided the final eligibility certificate is issued within one month from the date of receipt of judgment : Benefit of deferment of Sales Tax / VAT on Sales made upto 14th August, 2020 No refund of Sales Tax / VAT already paid by the petitioner Reduction of Rs. 700 crore from the total value of incentive Based on above, estimated Sale Tax Deferral is approx. USD 2 billion
12 Confidential ..And Ability to Leverage Synergies with Group Companies
Essar Shipping SBM Port Handling Tank Farms
Vadinar Oil Terminal Limited
Refinery
Essar Vadinar Power Construction Plant
Township Essar Steel
13 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
14 SBM Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
15 COT Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Main Refinery
16 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Water Intake 17 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Captive Power Plant 18 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
CDU / VDU 19 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
VBU Treaters 20 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
NHT / CCR 21 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
FCCU 22 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Diesel Hydro Desulphurization (DHDS) 23 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Aromatics Recovery Unit / Sulphur Recovery Unit (ARU / SRU) 24 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Dispatch Area 25 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Truck Gantry 26 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Rail Loading Gantry 27 Confidential End to End Infrastructure in Place with Ability to Ramp Up Capacity
Product Jetty 28 Exploration and Production Business Confidential
E&P Assets
Assam ● 100% interest in 2 Gujarat exploration blocks ● 70% operatorship interest in Mehsana block CB-ON/3 ● Certified 2P Reserves of 2.7 mmbbl of oil in one discovery alone West Bengal ● 100% interest in RG(East)- Nigeria * CBM-2001/1 block in Ratna Durgapur, WB ● 63% interest in offshore block OPL 226 ● 50% joint operators interest in Ratna & R series blocks Vietnam * ● Certified 2P Reserves of ● 100% interest in Offshore 161 mmboe block 114. Madagascar * ● 100% interest in 3 exploration blocks
* Under transfer
30 Strong E&P footprint with plans to expand Globally Confidential E & P - Performance
180 Sqkm of 3D seismic acquired and 10 wells drilled in block CB-ON/3, Mehsana. Currently producing from one field with certified 2P of 2.7 mmbbls and 2 additional discoveries under appraisal. Produced and sold more than 17,000 bbls of crude oil. 15 core holes drilled and coal tested for permeability, gas content, etc. in CBM block in Raniganj. drilling of 15 test wells and acquisition of 120 LKM of seismic under progress. Spent about US$ 75 Mn on Exploration & Production during financial year 2007-08. Committed work programme in the current phase of existing blocks is to the tune of US$ 290 Mn of which US$ 130 Mn will be spent in current financial year. Work programme includes: G&G evaluation and seismic programmes in Assam, Madagascar, Nigeria & Vietnam Drilling of wells in Raniganj and Mehsana Development of Ratna fields Scanning and evaluation of E&P opportunities Globally, focusing on Middle East, South East Asia, Central Asia, Africa, Australia, China, Indian-Sub Continent, South America, Eastern Europe and Russia.
31 Marketing and Distribution Business Confidential India: Amongst the world’s fastest growing energy consumers
Demand & Supply of Oil Per Capita Consumption of Energy (kgoe) 400 10 Constrained supply builds pressure on additional capacity... 360 In per-capita consumption India ranks 20th 350 8 300
250 6 190 200 170
4 150 120 120 (million tons) 100 70 80 2 40 50 30 30
0 0 a a l d A n zi a a S ia a hi a si ia b li ia r e d ld an U ra ra ce a y B n n r 1990-00 2001-02 2006-07E 2011-12E 2024-25E C A t n re n n o I o i us uss a o a a . d W R r K p .K n ly In ud A F rm a U ai a e a th e J p It in ica n S u G S a fr a o Source: Government of India and EOL estimate. Production+Oil Equity Demand Source: IEA o kr A Ir ic S U h ex t C ou M S Petroleum Products Demand Petroleum Demand Supply trends
160 190 140 120 170 100 150 80 130 (Mton) 60 onnes pa 40 110
20 million t 90 0 70 8 1 4 E E 9 0 0 -06 7 0 7- 8-99 0- 1-02 3- 5 0 1 50 9 9 0 0 0 0 8-09E 9 9 0 0 0 004-05 0 0 1 1 1999-002 2 2002-032 2 2 0 2006- 2007-08E2 2009- 2010-11E
LPG Gasoline Naphtha Kerosene Diesel Fuel Oil Others 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Government of India and Crisil Consumpion Refining Capacity Source: Government of India and Crisil Refining Capacity excluding committed exports 33 Confidential Oil Distribution and Marketing
Presence across India with 1,274 retail Outlets
y First private company in India to enter petro-retailing Own Supply Points spread sector (2003) through a franchisee model all across India
53 8 8 53 3 y Existing platform can be rapidly ramped up after 2 1 19 emergence of favorable regulatory policy 175 4 4 93 30
30 1 1 y Existing government subsidies for transportation fuels 103 187 37 unfavorable for development of retail marketing 2 1 33 163 y MoU with some Oil Companies for product offtake 16 supply points - 7 and infrastructure sharing 73 terminals and 9 depots 69
y Focus on exports / OMC & bulk domestic sales in 1 prevailing pricing regime 59 35
34 Designed to optimize profits as well as balance short and long term objectives Market Overview & Operational Performance Confidential Key Driving factors
FY 2007-2008 Nymex WTI Price ● Crude oil prices touched a record high 140 of $135 in May’08. 130 ● Price outlook for the FY 2008-2009
120 remains bullish but extreme volatility cannot be ruled out. 110 ● Geopolitical developments in the 100 Middle East and supply disruptions in
90 Nigeria. Price ($) Price 80 ● The weakening US dollar and economic uncertainty added to market 70 volatility. 60 ● Signs of healthy demand in China,
50 India and Middle East. Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Period ● Speculation in the futures market fueling price rally.
36 Confidential Product Cracks Scenario
Product Cracks on Dubai
55 Sing Gas Oil Dubai Jet Dubai Structural Shift Naphtha Dubai 1. Middle distillate crack soar to historic highs 45 Mogas 92 RON Dubai 2. Gasoline crack below middle distillate during peak summer driving period Fuel Oil - Dubai 3. Fuel oil crack falls to historic lows
35 Peak Driving season in U.S pushes Mogas-Dubai cracks higher.
25
15 $/bbl
5
-5
-15
-25
-35 May-08 May-07 July-07 April-08 April-07 June-07 March-08 August-07 January-08 October-07 February-08 December-07 November-07 37 September-07 Period Confidential Product Market Overview….
● The gasoline margins have been negatively impacted by the high level of inventories in the US and arbitrage flows into Asia from Europe. ● Naphtha crack in the Asian market was weighed down as higher Naphtha prices led to weakening regional demand, owing to petrochemical units switching to other alternative feedstock's like liquefied petroleum gas. ● The middle distillate market sentiment was underpinned by tight regional supply due to seasonal refinery maintenance schedules, higher demand and imports from China. In addition to gasoil, the jet / kero market also remained strong, largely on back of high demand and stronger prices. ● In the Fuel oil market arena, the crack and the cash market continued to weaken amid higher supply and lack of demand from the Asian market.
38 Confidential Product Market Overview
● Gasoline stock-draws during peak driving season in the US along with the tight distillate markets in Europe and Asia should support the product market, lifting refining margins across the globe. ● The current sentiment prevailing in the product market may support crude oil prices further, providing support for crude prices as the peak driving in U.S approaches. ● Meanwhile, with limited switch in the refinery mode to favor middle distillate production, the current tightness in middle distillates components might persist, supporting the higher prices in the market over the coming months. ● The persistent mismatch between the product demand pattern and the regular refinery outages is further expected to put upward pressure on light crude prices. To sum up, we can expect bullish refinery margin in FY 08-09.
39 Confidential Comparative Yearly Financial Results
( Rs in Crore) Sr.No. Particulars Year ended Year ended 31.03.2008 31.03.2007 (Unaudited) (Audited)
1 Net Sales / Income from operations 562.42 473.98 2 Other Income 14.37 10.39 3 Total Income (1+2) 576.79 484.37 4 Expenditure a) (Increase)/ Decrease in Stock in trade 98.92 (96.86) b) Purchases of Trading Goods 492.36 566.70 c) Employees Cost 2.29 12.32 d) Selling and distribution expenses 4.90 35.41 e) Depreciation / Amortisation 2.52 4.51 f) Other Expenditure 17.47 14.32 g) Total expenditure 618.46 536.40 5 Interest 2.01 2.52 6 Profit / (Loss) before tax (3)-(4+5) (43.68) (54.55) 7 Tax Expenses a) Income Tax ( Including deferred tax) (2.09) 12.35 b) Fringe Benefit Tax 0.06 0.59 8 Profit / (Loss) for the period (6-7) (41.65) (67.49)
40 Refining Expansion ( 10.5 MMTPA to 34 MMTPA ) Confidential Refining Sector: Rationale
cStrong global economic growth driven by BRIC nations fuelling energy demand Strong Macro cShift to heavier and sourer crude Dynamics and cClean fuel norms & compliance costs Consolidation cIncreased dependence on complex refining capacities
c Global demand to grow from 83 mmbpd in 2005 to 117 mmbpd in 2020 Sustained c Product demand for lighter distillates and cleaner fuels Demand c Potential anchor market in India
c Capacity growth is expected mostly in India, Middle East & China Capacity c Developed world expected to invest primarily in upgrading existing refineries Considerations c Global refining capacity stretched c Ageing global assets
42 Confidential Macro Dynamics: Oil Demand Appears Robust
70.0 Canada US
Developed Nations 60.0
50.0
Korea Japan Taiwan Australia 40.0 Sweden (bbl/day per '000 people) Developing Nations Italy Germany 30.0 UK World
20.0 Mexico Russia Thailand 10.0 Brazil Indonesia
Oil Consumption Per capita Oil Consumption Per capita China India 0.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 GDP per capita (US$ '000) Source: IMF, CIA factbook, 2007 Developing nations such as India and China amongst the lowest oil 43 consumption / GDP nations. Confidential Macro Dynamics: Global Crude Oil Availability Trends
Global Crude Oil Availability Trends (2005 – 2020)
33.7 1.45
33.6 1.40
33.5 1.35 ) Sulphur Content (%) Sulphur Content
33.4 1.30
33.3 1.25 API GravityAPI (Degrees
33.2 1.20
33.1 1.15
33.0 1.10 2005 2010 2015 2020 API Gravity Sulphur (%)
Source: OPEC World Oil Outlook 2007 Global crude oil basket is likely to become heavier and sourer, thus 44 favouring higher complexity refineries Confidential Macro Trends: Shift to Cleaner Fuels
Gasoline Sulphur Specs (ppm) Diesel Sulphur Specs (ppm)
600 2,500
500 2,000
400
1,500
300 ppm ppm
1,000
200
500 100
- - 2005 2010 2015 2020 2005 2010 2015 2020 North America Latin America Western Europe North America Latin America Western Europe FSU and E. Europe Asia Pacific Middle East FSU and E. Europe Asia Pacific Middle East Africa Africa
Source: OPEC World Oil Outlook 2007 Source: OPEC World Oil Outlook 2007 Tighter products specs force higher desulphurization requirements
45 Confidential Capacity Trends: APac / Middle East Leading Growth
1996 – 2006 Regional Capacity Increases Regional Capacity Additions (2007F – 2020F)
3.5% 7.0
3.0% 2.9% 6.0
2.5% 5.0 2.2%
2.0% 4.0
1.5% 3.0
1.1% 1.1% 1.0% 1.0% (mbbl/d) Capacity Distillation 2.0 1996 - 2006 Capacity Increase CAGR (%) 0.5% 1.0
(0.1%) 0.0% - Asia Middle Africa North South & Europe & Pacific East America Central Eurasia Asia- MiddleEast US & Africa Latin FSU Europe America Pacific Canada America (0.5%) Existing Projects - total 7.4mbbl/d Additional Requirements - total 5.6mbbl/d
Source: BP Statistical Review of World Energy 2007 Source: OPEC World Oil Outlook 2007 Asia Pacific and the Middle East are leading refining capacity growth
46 Confidential Capacity Trends: Global Refining Capacity Stretched
160 Utilization and Refining Margins heading North
12 102% 140 100%
10 Utilization Rates (%) 98% 8 120 Mid-Cycle 96% 6 94% 92% 100 4 90% 2 88% 80 Global Refining Margin ($/bbl) ($/bbl) Margin Global Refining - 86%
Brent (US$/bbl) 1993 1996 1999 2002 2005 2008E 2011E 60 Utilization Rate Global Average Margin
40 Positive Correlation between oil
20 price and global average refining margin also likely to contribute
- Jan-97 Nov-98 Sep-00 Jul-02 May-04 Mar-06 Jan-08 Rebased GRM ($/bbl) Brent ($/bbl)
Source: Broker Research – (September 2007 – January 2008), Factset
Global outlook for returns in refining remains Positive 47 Confidential Capacity Trends: Ageing Global Capacities
50%
45% 43%
40%
35%
30%
25% 21% 21% 20%
% of Global Refining Capacity Refining % of Global 15%
10% 10%
5% 5% 1% 0% <10 Years 10-25 26-30 31-35 36-40 >40
Age of Refining Capacity (Years)
Source: Based on data from BP Statistical Review of World Energy 2007 ~90% of current global refining capacity is above 25 years of age
48 Confidential Demand Trends: Home Market Bolstering Demand
Petroleum Products – Domestic Demand Supply Ageing Refinery Profile
120 IOCL 1901 0.7 110 HPCL 1954 5.5 BPCL 1955 12.0 100 HPCL 1957 7.5
90 IOCL 1962 1.0
onnes pa Kochi 1963 7.5 80 IOCL 1964 6.0 million t CPCL 1965 9.5 70 IOCL 1965 13.7
60 Bongaigaon 1974 2.4 IOCL 1975 6.0 50 IOCL 1982 8.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Numaligarh 1993 3.0
Consumpion Capacity CPCL 1993 1.0 Source: Petroleum planning and analysis cell MRPL 1996 9.7 Note: Excludes committed export capacities IOCL 1998 12.0 ● Domestic demand coupled with demand from refiners Reliance 1999 33.0 0.1 could offer potential market for Essar ONGC 2001 ● Domestic capacity comprises ageing refineries which 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 Capacity MMPTA leaves new and complex refiners in a sweet spot Source: Ministry of petroleum
49 Confidential India Emerging As The Next Global Refinery Hub
Netherlands Middle East ● Current capacity of ● Leveraged their crude supply / reserves to 63 MMTPA emerge as a strong export hub ● Integrated ● Current capacity of 354 MMTPA petrochemicals ● Significant exports with a large part of exports to plants and refineries Asia & Far East ● Current total Europe and Eurasia capacity of 1,236 MMTPA US Gulf Coast ● Current US capacity of 857 MMTPA ● Gulf coast home to ~50% of all US refining Singapore capacity India ● Export Hub ● Accounts for significant ●Over 90 MMTPA refining capacity at a single share of all US refined location at Vadinar ● Refining capacity: 60 products exports ●Modern high complexity refineries with Euro IV MMTPA and Euro V product capabilities ● Key Markets: ASEAN Current Hub ●Amongst the lowest capital and operating costs countries, Japan and ●Export hub anchored with growing regional China market Note: Assumes 1 bbl oil = 0.1345 tonnes of oil Source: BP Statistical Review of World Energy June 2007, Oil and Gas Journal High complexity resulting in premium product while processing cheap
50 opportunity crude, low capex and low opex driving competitiveness Refining Expansion: Project Parameters Confidential
Ramping up Capacity to 34 MMTPA with Complexity of 12.8
Base Total Capacity post Particulars Refinery Expansion
12.8 Complexity, Refinery Details 34.0 MMTPA
6.1 Complexity, 10.5 MMTPA
API (Density), Avg. 35.5 24.8 Sulphur %, Avg. 2.0% 2.97%
Product Grades Upto Euro III Upto Euro V / US Specs/CARBS
Designed to handle high acidity crudes upto 2 TAN
52 Confidential ..With Capability to Produce 16 MMTPA Euro V Products
● Largest producer of EURO V MS & HSD from a single refinery location ● Euro V/ US specs grade maximised at 90% in MS pool ● Euro V grade maximised at 61% in HSD pool ● Swing flexibility between light & middle distillates. Gasoline: 9.6 MMTPA
● Flexibility to produce petrochemical feed stock Euro IV 10%
Gasoline 24.7 28.2
Euro V 90% Diesel Diesel: 12.2 MMTPA 31.2 Euro II 35.9 Euro IV 11% 28%
Aviation Turbine 6.0 Euro V Kerosene 7.6 8.1 61% LPG 5.4 2.9 Propylene Others 7.2 3.4 5.3 Fuel Oil 11.3 11.2 Pet Coke
Fuel & Loss Residue 6.6 5.0 10.5 MMTPA * 34 MMTPA*
* Expected and could change from time to time depending on market dynamics 53 Note: Products as % of total Confidential …and Leverage Light Heavy Differential
Ability to Process Wide Range of Crudes Crude Processing Capacity API (Av.) (MMTPA) Light / Medium / Sweet
Sour Leverage Processing ● Since January 2007 the monthly average 0% 15% differential between Bonny Light and Maya has Heavy Sour 10% 34 24.8 been between $13.47/bbl and $20.12/bbl Tough ● Light heavy differential expected to remain high 75% Tough Light / Heavy Sour 10% Sweet 20% 30% And Leverage Light Heavy Differential 10.5 35.5
Medium / 140 Sour 40% 130 120 110 100 90 80 70 60 50 Value - US$ / bbl 40 30 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
54 Source – Bloomberg Bonny Light Arab Light Arab Heavy Maya Confidential .. Leading to High GRM Potential
* R2=0.8 13.0 Essar – 34 MMPTA (12.8)
R-9
11.0 R-8
9.0 R-7 R-6 R-5
Complexity 7.0 R-4 Essar – 10.5 MMPTA (6.1) R-3
5.0 R-2 R-1
3.0 5.0 7.0 9.0 11.0 13.0 15.0 GRM ($/bbl) Positive correlation between Complexity and Gross Refining Margin * Expected Note: GRM’s are for a 6 month period ending September 2007 for Indian 55 Refiners and 9 month period ending September 2007 for Global Refiners Source: filings and investor presentations Confidential
Expansion Scheduled to Come On-stream in 2010
Train I Train II UOP Mandated Development Optimization Expansion
● Processing heavy, sour ● UOP developed LP ● 10.5 MMTPA to 16.0 ● 18 MMTPA capacity acidic crude model and carried 300 MMPTA ● Similar units repeated ● Maximize Euro V products LP runs ● Revamps, modification ● Integration with Train I ● Petchem Flexiblity ● Final configuration for and addition of new ● Minimize energy use Train I and II process units
2007 2008 2009 2010 Activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Refinery Expansion10.5 to 34 MMTPA
Basic Engineering
Detailed Engineering
Procurement of Long lead Items Delivery of Equipment/ Material
Construction/ Erection
Mechanical completion
Oil in
Project is On Track to Complete Expansion as per Schedule 56 Confidential On Track with Support from World Class Partners
Basic Detailed Procurement Construction Engineering Engineering
● Order placed with ● Fixed price contract with ● Fixed price contract with ● Fixed price contract with Managing Licensor Essar Engineering Global FZE & Essar Essar Construction UOP and other leading ● Overall Detailed Construction ● Site already mobilised players. Engineering Completion ● 87% of enquiries for the ● Site Grading ● Overall Basic Status – 33% - Balance equipment and bulk commenced Engineering Completion by Early Q2 2009. materials already floated ● Foundations for Main Status - 98% - Balance ● Overall Plot Plan Layout ● All LLIs to be ordered by by Q2 2008 E-W Piperack frozen & Unit wise layout Q2 2008. commenced ● LLI Datasheets of most units including ● 75% of Balance generated on high OSBL completed – fronts Equipment/Materials also priority to kick start and drawings released to to be ordered by Q2 procurement commence civil work 2008
Engineering
Construction
Leverage ESSAR project execution capabilities & existing vendor relations for rapid execution of expansion 57 Refining Expansion – Project Cost & Financing Confidential Planned to be Financed through a D/E of 1.3:1.0
Estimated Project Cost for Expansion Cost Head US$ milllion (%)
Land & Buildings 50 1% Plant & Machinery 4,614 77% Project Management & Engineering Fees 246 4% Preliminary & Preoperative Expenses 105 2% Financing Cost 656 11% Contingency 329 5% Total Project Cost 6,000 100.00 Key Highlights ● Configuration,technology,schedule & cost budgets certified by Lenders Technical consultant ● Fixed priced contracts placed spanning EPC &PMC ● Competitive Capital Cost compared to upcoming other refineries ● Capital infusion of US$ 2bn by promoters in two tranches ● Fresh debt of upto US$ 4.5 – 5 bn to be raised through ECB and INR Loans ● In principle commitment from lenders – US$ 4.3 bn ● Debt Equity Ratio within 1.3 Current financing structure provides adequate flexibility for future requirements and growth capital 59 Confidential Low Capital Cost
2500 2289 2261 2108 2000
1500 1339 1333 1123 1037 1000
500 USD/bpd/Complexity
0 R1 R2 R3 R4 R5 R6 EOL (34MMTPA) Upcoming Refineries
Amongst the lowest capital cost, to provide competitive advantage 60 Confidential Refinery Business: Set to Deliver Strong Value
StrategicStrategic Location,Location, ProximityProximity toto Materials,Materials, AccessAccess toto EndEnd MarketsMarkets
IndiaIndia EmergingEmerging asas aa GlobalGlobal LeverageLeverage ExistingExisting ProjectProject RefiningRefining HubHub ExecutionExecution CapabilitiesCapabilities andand InfrastructureInfrastructure
OneOne ofof thethe LargestLargest SingleSingle RefiningRefining IndustryIndustry OutlookOutlook LocationLocation RefineriesRefineries GloballyGlobally –– RemainsRemains StrongStrong EconomiesEconomies ofof ScaleScale BenefitsBenefits
HighHigh Complexity,Complexity, CostCost Competitiveness,Competitiveness, ProductProduct FlexibilityFlexibility andand HighHigh GRMGRM PotentialPotential
Building an Environmental Friendly “Green Merchant Refinery”
61 Management Team Confidential Experienced Management Team
Senior Management Naresh K Nayyar Managing Director Chartered Accountant and IIM, Ahmedabad Alumnus 33 years of experience in Oil & Gas sector including development of multi billion dollar project, new markets and global operations in Oil & Gas Industry Was on the Board of reputed companies like IOC, ONGC, IBP and Petronet LNG Suresh Mathur Whole-time Director Chartered Accountant with over 40 years of experience mainly in Oil & Gas sector Was the CEO & MD of Petronet LNG Limited, which under his leadership set up India’s first LNG import and regasification terminal of 5 MMTPA capacity at Dahej and was Director Finance at IOC
Sourcing Refining E&P Marketing
Radha Mohan Eion Turnbull S. R. Agrawal Mr. Thangapandian Head – IST Head – Refinery Head of the E&P division Head - Marketing B.Tech – Chemical Engineer, over Over 27 years of experience in Chartered Accountant with over Over 25 years of experience in the Oil 23 years of experience in operations, research and 25 years experience in oil & gas and Gas industry in Sales & Marketing International trading, supply & technology and projects operations with IOC & Reliance Ind.
V Suresh Adi Shroff Raj Verma Sheikh Shaffi Mohan Kumar CFO – Refinery CIO – System Engineer Head - Buss. Development Company Secretary Head – HR Qualified Chartered Over 36 years of IT 47 years of experience in Over 30 years of experience in Post Graduate from XLRI Accountant & Company experience Indian oil industry Legal, Secretarial, Compliances Certified instructor for Blake and Secretary Mounton’s GRID Management Over 25 years experience programs across IB/ consultancy/ Industry across verticals Strong and Experienced Management Team in Place 63 Confidential Strong and Experienced Project Implementation Team
Shyam Bagrodia Gordon Clarke B. K. Mukherjee President – Refinery Expansion Project Director – PMC Group Technical Head
B. Tech (Hons.)- IIT, Kharagpur ; MBA from B.Sc. (Hons) from Salford University Chemical Engineer with an illustrious experience University of Rochester, NY Over 31 years of rich experience, 9 years as Project of more than 38 years with IOCL as Executive 37years experience in Chemical, Cement, Director at Foster Wheeler and 4 years as Head of Director of Gujarat Refinery for 2 years & the Edible Oil and Petroleum Industries; including Central Planning at Shell Brunei Executive Director of Haldia Refinery for 3 years setting up of Green Field Projects Responsible for completion & commissioning of Worked with LASMO, Kerr McGee Oil, Davy Project Leadership Worked with the refinery since inception; Base Refinery after restart in 2005 managed Commercial, Financial & ABB Offshore Ltd., Heerema/Lewis Offshore, Shell Expro Robert Kuiperi Shailesh Sawa Eugene Schmelzer Sr. Vice President - Commercial CFO – Refinery Expansion Consultant - Technical Services
Master of Law from University of Leiden,Holland Chartered Accountant & Cost Accountant 30 years of experience with ABB Lummus B.S.(Chemical) from Case Institute of More than 25 years of experience into Technology and a certified Six Sigma Green Belt Global where he was Director for the Corporate Finance having worked with Gujarat Commercial & Legal department Ambuja and SEBI Recently retired as Director of Engineering after a career that spanned more than 38 years of rich D.K. Jha D.K. Shukla experience with UOP overseeing Refinery Head – Refinery Execution (OSBL) Head – Refinery Execution (ISBL) process technology, R&D and process design engineering areas MBA from IIPM, Gurgaon and B.Tech (Chemical) PG Diploma MBA from I.I.Sc, Bangalore and from IIT Kanpur B.Tech (Chemical) from HBTI, Kanpur Albert Rolnik 30 years experience and has previously Over 25 years of experience including Reliance Consultant - Refinery Expansion Industries where he was heading Economics worked with Reliance Industries as a Sr. VP Planning & Scheduling for 3 years leading the process engineering for 6 years Project Execution Chief Operator for UOP at NNPC Nigeria and has Worked earlier with Engineers India Ltd., MW MBA from Northwestern University and B.S. worked with IOC, Barauni Refinery Kellogg (Houston), BOC Gases (Chemical) from Carnegie Mellon University 38 years of rich experience, has retired as Mr. Dean Sonntag Project Director - Engineering from UOP and has Consultant - Refinery Expansion overseen detailed engineering BS ChE from Purdue University, USA 37 yr of experience in design, construction and operation of petroleum refining and chemical facilities Previously worked with Worley Parsons Engineers, Egypt Ltd. UOP, Safety Kleen Corporation, Amcec Corporation, Davy McKee Inc., United Conveyor Corporation, and Copeland Systems 64 Confidential Investor/Media contacts
Analysts contacts Mr V Suresh CFO, Essar Oil Limited Tel #: 66601237/98197-30288 e-mail: [email protected]
Mr Sudip Rungta Head – Strategic Initiatives, Oil & Gas, Essar Group Tel #: 66601406/98197-30243 e-mail: [email protected]
Media contact Mr Mohan Nair General Manager- Corporate Communications, Essar Group Tel #: 66601321/98339-45779 e-mail: [email protected]
65 Thank You