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Chennai Petroleum Corporation Ltd.

BSE: 500110 Sector: Oil & Gas
NSE: CHENNPETRO ISIN Code: INE178A01016
BSE LIVE 15:41 | 06 Dec 264.90 -3.75
(-1.40%)
OPEN

271.00

HIGH

271.50

LOW

264.00

NSE LIVE 15:58 | 06 Dec 265.20 -2.25
(-0.84%)
OPEN

268.40

HIGH

271.25

LOW

263.55

OPEN 271.00
PREVIOUS CLOSE 268.65
VOLUME 45819
52-Week high 312.00
52-Week low 138.00
P/E 4.58
Mkt Cap.(Rs cr) 3947.01
Buy Price 0.00
Buy Qty 0.00
Sell Price 264.90
Sell Qty 1.00
OPEN 271.00
CLOSE 268.65
VOLUME 45819
52-Week high 312.00
52-Week low 138.00
P/E 4.58
Mkt Cap.(Rs cr) 3947.01
Buy Price 0.00
Buy Qty 0.00
Sell Price 264.90
Sell Qty 1.00

Chennai Petroleum Corporation Ltd. (CHENNPETRO) - Chairman Speech

Company chairman speech

CHENNAI PETROLEUM CORPORATION LIMITED ANNUAL REPORT 2008-2009 CHAIRMAN'S REPORT Ladies and Gentlemen, On behalf of the Board of Directors of Chennai Petroleum Corporation Limited and on my own behalf, I extend a hearty welcome to all of you to the 43 rd Annual General Meeting of your company. I also would like to thank you for allocating your valuable time to attend the meeting. WORLD OIL SCENE The year 2008-09 witnessed an unprecedented volatility in the price of most of the commodities including crude and products that has caused disastrous impact on the world economy and consequently many countries including USA had to endure one of the biggest recession in its history after 1930. According to BP Statistical Review of World Energy, the Global oil consumption declined by 0.6%, or by 420,000 barrels per day in 2008, the first decline since 1993 and the largest decline since 1982. The global crude / product demand is expected to further weaken in 2009 with a contraction of 2.9% to 83.9 million barrels per day as per the estimates of International Energy Agency. It is to be seen how quickly the economic situation stabilizes and bounce back on growth path over the next two to five years. IEA predicts that Oil demand may grow at between +0.4% and +1.4% annually after 2009, depending on the pace of global economic recovery. The recent increase in crude oil prices is considered to be largely due to a tighter crude supply/demand balance, although shortages of conversion, sour & heavy crude capacity in the refining industry have contributed to an increase in the relative value of light crude. However, current oil prices are around half the level seen last year in July, when they peaked at USD 147 per barrel. Prices have strengthened again recently, partly due to a perception that economic recovery may be just around the corner. The combination of increasing refining capacity and lower crude runs resulted in fall in global refinery capacity utilization in 2008 for the third year running to 84.8%, the lowest level since 2003. It is gratifying to note that presently the crude and product prices have altered the volatile swing and the crude prices are expected to hover around US $ 65 to US $ 75 per barrel in the near future. DOMESTIC OIL SCENE: During 2008-09, India's production of crude oil was 33.50 Million Tonnes, a decline of 1.8% compared to 34.12 Million Tonnes produced in 2007-08. The majority of India's crude production comes from Offshore, which accounts for about 68.5% of all indigenous production. Around 53% of offshore production comes from Mumbai High Fields operated by ONGC and the balance comes from Private Sector and Joint Sectors. The estimated total supply of crude oil during 2008-09 was around 161.66 Million Tonnes as compared to 155.79 Million Tonnes in 2007-08. As per the Petroleum Planning & Analysis Cell, India imported 128.16 Million Tonnes of Crude Oil during 2008-09 as against 121.67 Million Tonnes during 2007-08, with the remaining supply coming from domestic production. The average price of Indian Crude Oil Basket in 2008-09 was USD 82.7 per barrel. During the period April to August 2009, the price of the Indian Crude Oil Basket has increased from USD 50 per barrel to USD 72 per barrel. With the prices rising again, it is unlikely for the Government to deregulate the consumer prices, since the deregulated price is likely to be higher than the current prevailing prices. REFINING CAPACITY: India 's refining capacity is 176 MMTPA in 2008-09 spread across 20 refineries as compared to 149 MMTPA in 2007-08. India has a network of about 15000 Kms of Crude and Product pipelines with over 100 MMTPA capacity. India has emerged as a net exporter of petroleum products and single largest foreign exchange earner. Exports reached a figure of 36.93 Million Tonnes in 2008-09 as compared to a figure of 40.77 Million Tonnes in 2007- 08. The petroleum products import by India was to the tune of 18.29 MMTPA in 2008-09 as compared to 22.72 MMTPA in 2007-08. COMPANY'S PERFORMANCE : Physical performance : Your Company achieved a Crude thruput of 10.13 Million Metric Tonnes (MMT) in 2008-09 as compared to the previous year figure of 10.26 MMT. The capacity utilization of major secondary processing units in Manali Refinery viz., FCCU and OHCU, was the highest ever at 901 TMT (Thousand Metric Tonnes) and 1856 TMT respectively, representing an increase of 10% as compared to the previous year. The increase in thruput of secondary processing units during the year improved the production of high value distillates such as MS and HSD. Highest ever production: Your Company has achieved the highest ever production of 845 TMT of MS, 3535 TMT of HSD, 493 TMT of Asphalt and 30.9 TMT of Propylene. Record Sales: Your Company also achieved an all time record in the sale of Sulfur at 48.7 TMT, Propylene at 31.6TMT, Lube Extracts at 10.8 TMT and Propane at 0.72 TMT. Energy conservation: Your Company has reduced the level of consumption of Energy at Manali refinery, with the Energy Index recording its best at 71.4 MBTU/BBL/NRGF as compared to the previous year figure of 75.2. Thus, your Company has achieved a better physical performance during 2008- 09. Highest ever Export of Products: During the year 2008-09, your Company achieved the highest ever export of 1097 TMT of products through Indian Oil Corporation Limited comprising of Naphtha, High Speed Diesel, Fuel Oil and Lube Oil Base Stocks valuing Rs.2520 crore, as against the previous best of 809 TMT of products. Product Pipelines: Chennai-Tiruchi-Madurai Product Pipeline (CTMPL) achieved the highest ever thruput of 1.69 MMT with a Capacity utilization of 93.7%, by transferring MS, SKO and HSD from Manali Refinery. Dedicated ATF pipeline from Manali Refinery to Chennai Airport was formally inaugurated in the month of July 2009. Project activities pertaining to the 1.45 MMTPA Product pipeline from Chennai to Bangalore were commenced and are expected to be completed by early 2010. Financial performance: The financial year 2008-09 was the most volatile period for your Company. Despite posting a better physical performance and an improvement in turnover by 11% from Rs. 32889 crore to Rs.36489 crore, your Company was constrained to post a net loss of Rs.397.28 crore during 2008-09. This was mainly due to unprecedented volatile market conditions that prevailed from the second quarter of 2008-09, resulting in an adventitious inventory loss and processing of high-cost crude in a falling market. The unforeseen shutdown of Refinery II in September 2008 and lower Distillate Yields have also contributed to the negative performance. Your Company is taking all efforts to carry out its operations uninterruptedly and produce value added products focusing on maximizing the margins. The Gross Refining Margin in the last quarter of 2008-09 was USD 6.6 per barrel as a result of better market conditions. Your Company had posted better results in the first quarter of 2009-10 with crude and Product prices firming up. Consequently, there has been an increase in the GRM from US $ 1.22 per barrel in 2008-09 to US $ 6.9 per barrel in the first Quarter of 2009-10. During the first quarter of 2009-10, the Profit after Tax was impressive at Rs.304.72 Crore and the Gross Turnover was Rs.6739 Crores and the total crude processed by your Company was 2.685 MMT. TREASURY MANAGEMENT: Due to effective treasury management practices by your company the overall weighted average interest in respect of all loans both short-term and long- term was pegged at 9.4% p.a. in 2008-09 despite the fact that the crude oil prices has soared and the interest rates hardened during the year. CRISIL, a Standard and Poor Company continued AAA ratings for long term borrowings and P1 + for short-term borrowings as per Basel II norms. The Comptroller and Auditor General of India has given 'NIL Comments' report on the audited accounts of your company for the sixth year in succession. CRUDE BASKET: The Manali Refinery processed five new crude oils of imported origin viz., Arab Medium, Mellitah, NKossa, Rabi Light and Sarir which are now added to the 'Crude procurement Basket' comprising of 47 Crudes. Your Company also processed a trial cargo of new indigenous crude from KG Basin in April 2009. INTEGRATED REFINERY BUSINESS IMPROVEMENT PROGRAMME: You may kindly recall that in the last year, I had mentioned about the implementation of Integrated Refinery Business Improvement Programme in association with M/s. Shell Global Solutions International. 13 proposals with a net benefit value of about US Cents 28 per barrel have been approved for implementation. To improve Refinery Margin further, your Company has also taken up during 2008-09, another initiative of Risk and Reliability Management Programmes with M/s. Shell Global Solutions International, which will continue till 2011. PROJECTS UNDER IMPLEMENTATION: Capacity Enhancement of CDU / VDU III: Project execution activities for Refinery III Capacity expansion from 3 MMTPA to 4 MMTPA is in full swing and the project is expected to be completed by end 2009 at an estimated cost of Rs.200 crore. This project will facilitate production of additional value added products like LPG, Naphtha, SK, HSD, etc. Revamp of Semi-Regenerative Catalytic Reforming Unit to Continuous Catalytic Reforming Unit To facilitate the production of high quality MS with increased Octane content, your Company is currently revamping the existing Naphtha Hydro-treating / Semi-Regenerative Catalytic Reforming Unit to Continuous Catalytic Reforming mode at an estimated cost of Rs. 273 crore and the project is expected to be completed by end of 2009. Euro IV Preparedness on Auto Fuel: Your Company has undertaken the Auto-Fuel Quality Upgradation project at an estimated cost of Rs. 2615 Crore in Manali Refinery to produce MS / HSD meeting Euro IV specifications for Chennai and Bangalore and to upgrade product quality from Bharat Stage II to Euro III equivalent specifications for the rest of the locations from April 2010 onwards, as per the Auto-Fuel policy of the Government of India. PROJECTS - NEW INITIATIVES: Resid Upgradation Project: In order to increase the Distillate Yield of the Refinery and reduce Fuel Oil production, your Company proposes to install a high conversion Resid Upgradation Unit at an estimated cost of Rs. 3500 Crores and the project is expected to be completed by end 2012. Single Point Mooring (SPM): Your Company has decided to put up a SPM for Crude Oil receipt at Ennore, in view of the abnormal delay in obtaining the Right of Way for a new Crude Oil Pipeline from Chennai Port to Manali Refinery. The proposed SPM is estimated to cost Rs.850 crore and it will be erected off Ennore coast alongwith Crude Oil Terminal and associated facilities. The proposed facilities would ensure Very Large Crude Carrier (VLCC) handling and would result in savings on the freight for Crude oil transportation for Manali Refinery. INNOVATION: Oxygen Enrichment Technology: In pursuit of innovation, your Company in association with M/s.Engineers India Limited has introduced in May 2009, an Oxygen Enrichment Technology for Sulfur Recovery Unit in Refinery III, for increasing its capacity by 22 percent. This technology can be replicated by other refineries as a low cost option to expand capacity of SRU by 20-25%. Indigenous Catalyst: Your Company's yet another innovative initiative include successful introduction of an indigenously developed IOC R&D's Desulphurisation Catalyst in Plant 13 by first commercial operation to produce Ultra Low Sulfur Diesel of less than 50 ppm. SAFETY HEALTH and ENVIRONMENT: Your Company accords utmost importance to Safety, Health and Environment and is strongly committed and dedicated to the well being of those working within the precincts of its Refineries and also its neighbourhood. Your Company imparts safety training by conducting Fire & Safety training classes every month to its employees and also conducts on the spot training for contract workers in the areas of operation of Fire Extinguishers, self contained breathing apparatus, fall arrestors and descender rescue operations, etc., The Occupational Health Service Centre of your Company has built up strong systems and procedures in the areas of health care of its employees and continue to work towards achieving improvements upon and setting benchmarks in these areas. New medical equipments were added in the OHS Centre to strengthen the infra-structural facilities for handling emergencies. Your Company continues to lay focus on development of clean and green fuels while simultaneously ensuring continued viability and profitability of its Refinery operations through a number of environmental measures like solid waste management, recycling of treated effluents and development of green belt, etc. In recognition of its pioneering efforts in the areas of Occupational Health and Safety, your Company has been awarded the Golden Peacock Award for Occupational Health and Safety for the year 2009 by the Institute of Directors, New Delhi. The increase in the use of Hydrocarbons has contributed to the Climate Change which has prompted the Government of various countries to regulate petroleum related carbon emissions. This move will force greater focus on efficiency improvement and energy conservation at the refineries. Your Company has also taken several measures in this direction which are focused on Green House Gas abatement. H R INITIATIVES: Your Company strongly believes that the focus of all aspects of Human Resource Development is on developing the most superior and agile work force which is responsive to the business needs and challenges. During the last year, your Company has carried out `Skill gap analysis' for the middle management group of employees and identified the gaps which need to be addressed to. In the current year, training programmes were conducted in order to fill up the gaps that have been identified. This exercise was done to develop the skills, knowledge and ability of the employees in the middle management to retain and motivate them. During the year, your Company has conducted an Employee Engagement Survey which was found to be of very high order. Various HR initiatives undertaken in the previous year like Mentoring, Department-wise Open House Meets and Field visits were continued during this year also. CORPORATE CITIZEN: Your Company has effectively played the role of a caring Corporate Citizen by contributing a sum of Rs. 169.78 lakhs towards various CSR activities including organizing medical camps, providing infrastructural facilities, provision of scholarships, etc. Your Company was conferred Mother Teresa Award for Corporate Citizen 2008 instituted by Loyola Institute of Business Administration (LIBA). LIBA, Chennai, has instituted this award in the name of Mother Teresa, for Corporate Citizen in the year 1998. CORPORATE GOVERNANCE: Your Company adheres to sound Corporate Governance practices which are based on the foundations of high accountability to the shareholders, absolute transparency in the reporting system and high ethical standards in the conduct of its business standards. Your Company complied with all the mandatory requirements of Corporate Governance Guidelines issued by SEBI and also the Corporate Governance guidelines prescribed by Department of Public Enterprises (DPE), Government of India applicable to Central Public Sector Enterprises, except the requirement relating to minimum number of Independent Directors. Action has been initiated to comply with this requirement also. In a bid to maintain complete transparency in contracts and procurements, your Company has entered into a Memorandum of Understanding (MoU) with Transparency International India (TII) for implementation of Integrity Pact. By signing this MoU, your Company joins select corporates in India who adhere to this model which binds a company and its suppliers/contractors to ethical conduct in contracts and implementation of projects. Mr. P. Shankar, IAS (Retd.), Former Central Vigilance Commissioner, and Justice K. Govindarajan, Retd. Judge of the Hon'ble High Court of Madras, are the Independent External Monitors for implementation of Integrity Pact in your Company. Your Company was one among the top 25 Companies adopting good Corporate Governance practices in the year 2008, by the Institute of Company Secretaries of India, for the third time in a row. FUTURE OUTLOOK: I would like to conclude by observing that your Company is poised to take on the competitive challenges in future. Your Company has taken several initiatives which include capacity expansion, better infrastructure, implementation of SAP, skill development of employees etc. Your Company is also involved in carrying out business optimization exercise supported by a Linear Programming Model in order to improve the efficiency of its operations. The dedicated Human Resource of your company has always remained steadfast behind all our strategic efforts in order to emerge as the best in the class refinery. ACKNOWLEDGEMENT: I take this opportunity to place on record that the strength of your Company lies in the large number of our valued shareholders and with your valued support, we would be in a position to successfully accomplish our corporate mission. I express my gratitude to the valuable contributions of my colleagues on the Board. Finally, I thank the Government of India, Government of Tamil Nadu, National Iranian Oil Company, our Foreign Collaborator, Oil Industry Development Board, Petroleum Planning and Analysis Cell, the Comptroller and Auditor General of India, Central vigilance Commission, Banks and Financial Institutions for their continued guidance and support. I thank you all for your keen attention Mr. S. Behuria Date : September 7, 2009. Chairman Source: Website Dated : 12th September, 2009

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