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Oil & Gas: Key drivers in 2011
�� Crude prices on the increase, under-recoveries exploding: Expectations of global recovery would continue to support
crude prices going forward (US$90/bl vs. US$80/bl in FY11) . This will lead to significant stress on the PSU space
due to burgeoning subsidies (Rs 830bn in FY12 vs Rs 760 bn in FY11)
�� Refining, Petchem margins to improve: On the back of improving demand and limited capacity additions ahead —
refining (Singapore refining margins expected at US$5.5/bl vs US$5.1/bl YTD FY11) and petrochemical margins are
expected to improve led by 70% YoY rise in Cotton prices. These margin expansions would support RIL’s profitability
�� E&P could drive BPCL: BPCL already has 4tcf recoverable reserves in Mozambique after three discoveries. The
company plans to do one appraisal well in CY11 along with 6-8 exploratory wells which could meaningfully improve
valuations for BPCL. RIL’s KG D6 production expected to remain flat at 60mmscmd; however its exploratory drilling
in MN-D4 in H1CY11 could surprise
�� Gas transmission volumes at risk: GAIL’s transmission volumes (FY12E at 128mmscmd vs. FY11 at 115mmscmd)
could be at risk due to lower production from RIL’s D6 field as well as new power plants in Gujarat (thru GSPL) and
Andhra Pradesh (thru GAIL, but at lower tariffs), which might get priority over other consumers currently getting gas
on GAIL’s HVJ pipeline
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