Reliance Industries, the country's largest company by market capitalisation, will sell its Krishna-Godavari (KG) basin oil at a discount of around $ 5 per barrel to Brent crude oil, the global benchmark.
The company, which had reported sales of Rs 41,579 crore (Rs 415.79 billion) in the first quarter of the current financial year ended June 2008, may add around $ 300 million (Rs 1,400 crore or Rs 14 billion) to its turnover in the October-December quarter as it begins sale of the KG oil to Indian refiners.
At present, Brent crude oil, which is produced primarily from oil fields in the North Sea near Norway, is trading at around $ 100-105 per barrel.
"Our oil will be priced at around $ 5 per barrel discount to crude oil. Tests have shown the quality of our oil is similar to that of Brent crude oil," said a senior RIL official.
RIL will produce around 35,000 barrels of crude oil per day from the field at peak rate. This is around 5 per cent of the total crude oil produced in India. The company will initially produce around 10,000 barrels per day and increase it to peak rate in a month's time.
As per the terms of the agreement, the government will earn profit from the sale of oil only after Reliance Industries recovers its $ 2 billion investment made towards producing the oil.
The cost of production per barrel of oil is not known. RIL's share price on the Bombay Stock Exchange has fallen 9.3 per cent in the last month as world markets have tumbled on fears of an economic crisis.
RIL expects oil and gas sales from the Krishna-Godavari basin to boost its revenues and profits significantly. The company started test production of oil from the basin around 10 days ago.
"We are not yet selling the crude oil. The flow of oil from the well will stabilise in the next two-three days and then we will start sales," said the RIL official. "Full production will take another month or so," he added.
An official with Indian Oil Corporation, the country's largest refiner, said that refineries which are not very complex can process this crude oil at low costs. "The crude oil will yield mainly petrol and diesel and there is less residue," he said.
The RIL official said that the crude oil from its field will not be refined by the company's refinery in Gujarat. "The economics will not work out as our refinery is designed to create value from very cheap and low quality crude oil," he said.
