Financial Analysis of Oil & Gas Sector

Financial Analysis of Oil & Gas Sector

Bharath Petroleum CorporationLimited (BPCL)

& Hindustan Petroleum Corporation Limited (HPCL)

Submitted by: GROUP 8

R Shashank Reddy 12P223

Rahul Kumar 12P224

Rajan Mishra 12P225

Rishabjot Singh 12P226

Rishi Maheshwari 12P227

Sai Naveen Babu 12P228

Summary of Oil and Gas Sector

The Oil and Gas sector can be broadly divided into 3 activities.

1. Up Stream : Exploration and production of crude oil/natural gas

2. Mid-Stream : Transport of crude oil/natural gas over land or water

3. Down Stream : Refining, Selling and distribution of natural gas and crude oil products

We would be analyzing two down-stream sector companies - Bharath Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL).

Down stream Oil and Gas Sector:

The downstream oil sector mainly deals with refining of crude oil/natural gas and marketing, sales and distribution of Crude Oil/natural gas derivatives. Crude Oil refining produces petrol, liquefied petroleum gas (LPG), diesel, jet fuel, asphalt, petroleum coke and other fuel oils. The downstream sector includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies. Downstream also includes marketing, customer service and strategic planning for the sale and distribution of finished products. The margin of oil refineries is highly dependent on crude oil price (since prices of oil products are highly regulated and depend on political factors). Hence down stream process revenue is highly correlated with efficiency (quality and price) of upstream and midstream sectors.

India witnessed a huge growth in crude oil refining capacity since independence. At present there are 20 crude oil refineries in the country (17 public + 3 private). Domestic Crude Oil refineries capacity stands at 203.7 Million Metric Tonnes(MMT) and actual production at 170.146 MMT in 2011-12. The capacity/production is expected to annually grow at 4%. Reliance Industries Limited (RIL) is the market leader