Chevron Says It Has Until Mid-Year to Decide on Reliance Stake

By Dinakar Sethuraman and Archana Chaudhary

Feb. 4 (Bloomberg) -- Chevron Corp. said it has until the middle of this year to decide whether to increase its stake in an oil refining unit of Reliance Industries Ltd., India’s biggest company by market value.

The U.S. oil company acquired 5 percent of Reliance Petroleum Ltd. in April 2006 and “has the option to increase its share in the project to 29 percent,” said Gareth Johnstone, a Chevron spokesman in Singapore. “The option is open to mid- year.”

San Ramon, California-based Chevron may sell its stake in Reliance Petroleum as declining refining margins and falling fuel demand force the U.S. oil company to exit unprofitable ventures, India’s Business Standard reported today, citing people it didn’t identify. In November 2007, the same newspaper had reported Chevron may decide against exercising the option to buy more shares after the stock price more than tripled that year.

“For competitive reasons, we are not commenting on our investment plans in India,” Johnstone said in an e-mailed reply to questions today. A spokesman for Reliance Industries in Mumbai declined to comment on the newspaper report.

Reliance Petroleum started its 580,000-barrel-a-day refinery at Jamnagar in Gujarat state in December. The new plant is adjacent to its parent’s 660,000-barrel-a-day refinery.

Shares in Reliance Petroleum have fallen 51 percent in a year and traded at 84.50 rupees at noon in Mumbai. The stock is trading higher than the 60 rupees apiece at which Chevron acquired its stake in a share sale.

‘Good Time to Buy’

“This is a good time to buy more Reliance Petroleum shares, especially if one is looking at the long-term refining cycle and the cost of setting up such as refinery at this point in time,” said Amit Rustagi, assistant vice president, Antique Stock Broking Ltd, who has a buy on Reliance Industries and Reliance Petroleum. “Reliance Petroleum is currently selling at lower than its replacement value.”

The replacement value of an asset is what it would cost today to build it.

The refineries operated by Reliance Petroleum and its parent at Jamnagar can process heavy, sour varieties of crude oil, which are cheaper, and convert them into higher-value products such as gasoline and diesel.

“We are discussing with Reliance the opportunity there at the Jamnagar Refinery,” David O’Reilly, Chevron’s chief executive officer, said on a Jan. 30 conference call with analysts, according to a transcript provided by the company. “These are sensitive commercial discussions and I would prefer not to comment on them at the present time.”

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.