When California-based refining giant Chevron picked 5 per cent stake in Reliance Petroleum [Get Quote] in April 2006, just weeks before the Mukesh Ambani firm's initial public offer, it was hailed as Big Oil's first serious entry into Indian oil [Get Quote] refining.

The relationship strengthened with Jeet S Bindra, president of Chevron Global Refining, joining the RPL board. The share sale agreement between the two companies also gave Chevron an option to buy an additional 24 per cent on conclusion of certain "collaboration agreements" under which the US firm was supposed to provide 35 per cent of the crude oil requirements of the new Jamnagar refinery and buy 45 per cent of the refined products for 10 years.

RIL [Get Quote] officials had then termed the deal a "win-win" for both the companies. It's an irony that the termination of the agreement was also hailed as a "win-win" by RIL in informal briefings with the media today. When reminded about this, an RIL official shrugged and said "nothing is constant in business."

That the relationship was not going anywhere was evident from the fact that RPL did not sign any crude sourcing and product offtake agreements with Chevron as was envisaged earlier.

So what exactly led to Chevron exiting RPL within two years? Analysts said the decision was expected after declining refining margins and falling fuel demand forced the US major to exit several ventures in other parts of the world, too.

Besides, the world scenario has changed drastically in the last three years, which none of the companies could predict in 2006. From a shortage of global refining capacity demand then, the world is now seeing reduced demand for petroleum products.

This forced RIL to directly enter important markets in the world, reducing its projected dependence on Chevron. For example, RIL has already set up wholly-owned subsidiaries in London, Singapore, Dubai and the US, to tap opportunities in these markets.

Analysts said the move showed that RIL was confident of sourcing crude and product sale on its own. In fact, RIL's old Jamnagar refinery had been sourcing crude efficiently, which was one of the main factors why it consistently achieved far higher margins than the benchmark  Singapore margins.

An RIL official today stressed the point that the termination of the relationship was a "joint decision" and not something that was insisted upon by Chevron. "Their interest was alive when RPL was just a standalone refinery, but the merger has taken away the logic of Chevron continuing the relationship," he said.

Another reason was that RPL was not willing to give Chevron access to its technical purchase models, as this was not something that was in the interest of the company. The concern was that Chevron could insist on such an access if it picked up 29 per cent stake in the company.

RIL will buy the shares at Rs 60 a share, exactly the same price at which at it sold these to Chevron.