Finance & Markets
How Oil India and Numaligarh Refinery synergies work
On 5th March 2021 Oil India Limited (OIL) became the promotor and the holding of Numaligarh Refinery Limited (NRL) with share purchase and transfers. Share Purchase Agreement (SPA) was signed between Bharat Petroleum Corporation Limited (BPCL) and consortium of OIL & Engineers India Limited (EIL) for sale of 43.05 crore shares in NRL to the consortium at a consideration of Rs.9,375.96 crore. EIL paid Rs.700 crore for 3.21 crore shares, while OIL bought 39.84 crore shares for Rs. 8,675.96 crore. The remaining 2.29 crore equity shares held by BPCL have been purchased by the Government of Assam for Rs. 500.00 crore. With these transactions, BPCL transferred its entire 61.65% holding in NRL to the Consortium and Govt. of Assam. OIL holds 80.16%, Govt. of Assam 15.47% and EIL holds 4.37% of the shares in NRL.
For OIL, acquisition of majority shares of NRL is not only a strategic business decision but one of the defining moments of OIL’s corporate journey as an E&P Company looking for vertical integration in the oil & gas value chain. The acquisition is likely to partially mitigate the effect of volatility of crude price cycle due to diversification of cash flows, reduce earnings volatility and enhance shareholder value. At the same time, NRL also now has become part of an integrated energy company.
- OIL produces around 7-8 MMSCMD of NG in North East, out of which around 1 MMSCMD is supplied to NRL.
- OIL is currently operating the Naharkatiya-Barauni crude pipeline as well as Numaligarh-Siliguri Product Pipeline.
- NRL is executing a cross-country crude pipeline of 1630 KM in length which will traverse through 5 states (Odisha, West Bengal, Jharkhand, Bihar and Assam). OIL’s expertise in execution and operation of pipelines can be shared in development of the same.
- NRL has already ventured into upstream oil exploration partnering with OIL as operator in two oil blocks (Namrup and West Mechaki). NRL has earmarked investment of around Rs.90 crore in these two blocks.
- NRL has ventured into production of value-added food grade wax, food grade hexane and exploring possibilities for developing other niche chemicals like furfural alcohol, biodegradable plastics etc. NRL can leverage OIL’s international presence and explore export markets for such products.
- OIL and NRL are partners in several other joint ventures in related businesses. The synergy will enable further consolidation of OIL-NRL group in such JVs.
- OIL and NRL are also the promoters, 20% shareholding each in Indradhanush Gas Grid Limited (IGGL) where we will be setting cross-country NG Pipeline connecting all the state capitals of North East.
- As majority shareholder and holding company, OIL CMD has now become the Chairman of NRL’s Board.
- Shares were sold by BPCL at a price of Rs.217.75 per share which was offered by OIL & EIL. At this price, NRL is valued at INR 16,018 crore.
- Government of Assam intends to increase its shareholding in NRL to 26%. To achieve this, GOA is likely to purchase remaining shares from OIL in due course of time at the same valuation at which OIL has purchased shares from BPCL.
The OIL-NRL Synergy
OIL is the primary source of crude oil for the NRL. Annually, OIL supplies around 2,000 TMT of crude oil to Numaligarh Refinery, which is 67% of NRL’s requirement. Further, the amount of crude oil supplied by OIL is around 60% of indigenous crude produced by the Company in North East.
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