Presented by :

Tarun Bherwani 8107Reena Gala 8119Shraddha Kothari 8137Pooja Shah 8148Pooja Sharma 8151Jigar Upadhyay 8159

Overview of the Oil & Gas Sector

The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP.

Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 % of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.63 billion during April-December 2008.

India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mmtoe) in 2007-08 to 233.58 mmtoe in 2011-12.

Cont…

India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 % over other Asian countries.

According to a recent KPMG report India's energy sector will provide investment avenues worth US$ 120 billion-US$ 150 billion over the next five years. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 billion to US$ 40 billion by 2012.

RELIANCE INDUSTRIES LTD

RIL Reliance Industries Limited was set up by Late Dhirubhai H. Ambani in 1966 and is

India's largest private sector company with interests in materials value chain and energy.

Ranked 193rd in Forbes Global 2000 list of companies. Ranked among top 150 companies of the world in terms of profits. Initial public offering (IPO) in 1977. Growth through backward vertical integration.

- Textiles,

- polyester,

- fiber intermediates,

- plastics,

- petrochemicals,

- petroleum refining ,

- oil and gas exploration and production.

Cont…

Awarded in the categories of ‘Exploration and Production – Company of the Year' and ‘Refinery of the Year’ by PetroFed Association.

It also received ‘Outstanding Achievement in Oil Refining’ award from Chemtech Foundation in 2007.

RIL is credited of being :

i) Largest producer of polyester fiber and yarn in the world.

ii) Among the top five to ten producers of the world in major

petrochemical products.

iii) It has the largest refining capacity at any single location.

Cont…

India’s largest private sector enterprise with strong financials:

– Revenue exceeds $ 33 billion

– Exports of about $ 21 billion

– EBITDA of over $ 5 billion

GLOBAL RANKING

CRITERIA 2008 2007

Net Sales 206 269

Net Worth 161 190

Total Assets 273 299

Net Profit 103 179

RELIANCE PETROLEUM LTD

RPL RPL is a subsidiary of Reliance Industries Limited (RIL).

It commenced its business in November 2005.

The Company formed to set up a greenfield petroleum refinery and polypropylene plant to be located in a Special Economic Zone in Jamnagar in Gujarat.

This global sized, highly complex refinery is located adjacent to RIL’s existing refinery and petrochemicals project.

With the completion of the RPL refinery, Jamnagar has emerged as the ‘Refining Hub of the World’ with the largest refining complex with an aggregate refining capacity of 1.24 million barrels of oil per day in any single location in the world.

Cont…

It ranks as the 6th largest refinery in the world and is also amongst the world’s most complex refineries with an annual crude processing capacity of 580,000 barrels of oil per stream day (BPSD).

The RPL refinery is located on the west coast of India which is in close proximity to the Middle East, the largest crude oil producing region in the world. This is expected to result in lower ship turnaround time and reduced crude freight costs.

Among the top 5% refineries globally with capability to process ultraheavy crude

– Built to supply ultra-clean fuels to meet the world’s evolving needs.

– Focus on high growth transportation fuel segment. Lowest US$/complexity-barrel cost among recently built refinery

projects.

CHEVRON 5% stake in RPL

Additional 24% Stake

In RPL

Exit from Company

Altogether

If Chevron had increased its stake to 29%,

RIL which earlier had 71% stake, would now have 47% stake in the company

Cost of 24% stake in RPL for Chevron

2007 $6 billion

As of Now $1.6 billion

Reasons for Merger

The combined refining capacity will be 1.24 million barrels of crude/day.

Make Reliance in the list of 50 most profitable companies.

Make Reliance in top 5 producers of polypropylene.

Enhance weightage in all the stock indices.

Give monopoly to RIL in negotiating the crude price

MERGER DETAILS

The all-share merger deal valued at about Rs 8,500 crore between the two Mukesh Ambani group firms, RIL and RPL, has become probably the 10th-biggest ever for the country and the first billion-dollar deal this year

The merger between RIL and RPL will give the benefit of combined operating profitability to the merged entity. RIL stands to benefit from the depreciation it could show for the RPL refinery to earn additional tax breaks

Merger Rational

Unlock synergies from combined operations –Crude sourcing, Product placement, Supply Chain

Optimization Greater flexibility in operations planning Expansion of refined product range Optimized utilization of secondary process units and

infrastructure Efficient utilization of combined cash flows

Benefits from merger

The biggest benefit for RIL seems to be using additional cash flows generated by RPL which can be used to step up investment and expansion of its oil & gas exploration business.

Another factor motivating the merger may be the continuity of tax benefit accruing from a special economic zone for another five years.

RPL is expected to report a profit of about Rs 4,500 crore (Rs 45 billion) in 2009-10 while RIL expects to post a profit of more than Rs 19,000 crore (Rs 190 billion) in 2009-10.

Creates a platform for value-enhancing growth. Minimal project risks.

How the merger will help in TAXATION purposes

The move will help the company hedge its bets against demand challenges globally when the old refinery loses tax incentives once its export-only status ends in March.

The Budget rationalized the tax regime for companies that have units in both the domestic tariff area and export zone. Earlier, such companies had to pay higher taxes

Reliance Petroleum is totally exempt from tax for first 5 years of operations, followed by 50% tax exemption for the next 5 years.

The new refinery will not have to pay excise duty, and service tax for products and services respectively, sourced within India only.

Factors considered for valuations

The market price of the shares

The earnings performance

The asset base of the company

The net asset value and the market price

Challenges

The valuation of the merger between RPL and RIL was a challenge because RPL had just started operating over a month back, while RIL had a more established manufacturing facility.

FUNDING STRUCTURE

Term loan facility for approximately Rs 6,750 crore The company proposes to fund the project through a

debt of Rs 15,750 crore and equity of Rs 11,250 crore, including proceeds from the public issue

additional equity raised in excess of Rs 11,250 crore will be used as additional contingency for the project

Export credit agencies for approximately Rs 4,500 crore to Rs 6,750 crore

ADVISORS

IMPACT OF MERGER PROPOSAL

MARKET SHARE (PRE MERGER)

RIL• Pre-merger, RIL had

nearly a 62 per cent shareholding in RPL.

• Of this 28 per cent directly held by the company will be now cancelled

RPL• The 36 per cent RPL

shares held by Reliance Investments Holding Limited

• a 100 per cent subsidiary of RIL and RIL associates, another holding company will now be put in a trust that will constitute 12 per cent of RIL's equity post merger

MERGER FACTS

• Merger ratio of 1 share of RIL for every 16 shares of RPL.

• RIL to issue 6.92 crore shares to RPL shareholders.

• 4.4% increase in equity base from Rs 1,574 crore shares to Rs 1,643 crore.

• Promoter holding in RIL will reduce from 49% to 47%

Particulars RIL (pre-Merger)

Share issued to RPL shareholders

RIL(post-merger)

No. of shares(cr.)

(%)No. of shares(cr.)

(%)No. of shares(cr.)

(%)

RIL's promoters 77.17 49.0 77.2 47.0

Treasury stocks 9.42 6.0 9.4 5.7

RIL's promoters

effective stake 86.59 55.0 86.6 52.7

Others 70.79 45.0 6.92 4.4 77.7 47.3

Total 157.38 100.0 6.92 4.4 164.3 100.0

RIL's Shareholding pattern post merger

SUMMARY• India’s largest ever merger.• RPL shareholders to get 1 share of RIL for every 16 shares of RPL.• RIL’s holding in RPL to be cancelled. No fresh treasury stock created.• RIL to be among top 10 private sector refining company globally.• RIL to be among the world’s largest producer of Ultra Clean Fuels.• Merger to unlock greater efficiency from scale and synergies.• Merger to be EPS accretive; AAA rating reaffirmed by CRISIL.• RIL to have 3.7 million shareholders.

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