CBM key for Reliance Industries till R-Series goes on stream

Energy-to-telecom conglomerate Reliance Industries’ (RIL) investment in coal-bed methane (CBM), which falls in the oil and gas segment, has started lifting the company’s sagging fortunes in production. 

     

The Mukesh Ambani-helmed company has been building its presence in the segment over the past one year and also reported revenue growth.  
 

RIL said the marginal rise in revenue for the oil and gas segment in the last financial year was because of increased CBM production. Volume in terms of production from the conventional fields and from US shale assets were lower on account of slowdown in development activities.  
 

In FY18, revenue in the oil and gas segment increased 0.3 per cent year-on-year (yoy) to Rs 52.04 billion. RIL started 

its CBM commercial production in March last year. Its production in the March quarter of 2017-18 was 2.68 billion cubic feet (BCF) of gas as compared to 2.44 BCF in the previous quarter. 

A company statement stated that RIL could become one of the largest unconventional natural gas producers in India by ramping up its extraction activities. 
 

The company has now initiated its second phase operations for the CBM project with major orders placed. 

Despite all these, CBM may not be a huge contributor to RIL in the oil and gas segment. “The scope for increasing CBM extractions is limited, and it cannot be a meaningful contributor to RIL. The main contributor would be R Series (the first phase of KG-D6 block), once it starts production after 2020,” said an analyst with a domestic brokerage firm. 

He added until then CBM would give support to maintain the company’s performance. In 2017, RIL and its joint venture partner, BP, had committed to investing Rs 400 billion to develop the KG-D6 block.

According to the RIL investor presentation, in its domestic exploration and production business, gas production was 13.7 BCF in KG-D6  and 15.07 BCF in the Panna Mukti oil field. It was 2.68 BCF from CBM in the March quarter. Consequently, production from KG-D6 and Panna Mukti showed a decline. 
 

In its statement for 2017-18, the company said domestic production (RIL share) was 78.9 billion cubic feet equivalent (Bcfe), down 16.9 per cent yoy, and in the US Shale (RIL share) business it was 139.7 Bcfe, down 19.7 per cent yoy.

Overall, the oil and gas business recorded Rs 7.46 billion revenue though the EBIT margin declined further to -80.4 per cent for the quarter ended March 31, 2018, from -17.8 per cent in the preceding quarter. For 2017-18, there was a marginal improvement to -29.5 per cent from -30.5 per cent.