RIL's oil-to-chemicals business recovers but second wave a challenge

The company's oil and gas production is hinging on output at its satellite fields. It is minuscule compared to its big-bang entry into this segment in the late 1990s

Reliance Industries Ltd (RIL), India’s biggest petroleum company that is still looking to close its much-delayed deal with Saudi Aramco for its O2C (oil to chemicals) business, has seen recovery in both its upstream and downstream activities during the fourth quarter of FY21.
 
Growth in these segments, however, appears tentative owing to the current wave of the pandemic and also because the annual performance last year was pale.
 
Its oil and gas production is hinging on output at its satellite fields. It is minuscule compared to its big-bang entry into this segment in the late 1990s.
 
The company is selling gas from its new finds in three rounds of bidding, including two rounds of bidding for KG D6 gas. It signed gas sales and purchase agreements with 19 successful bidders.
 
The third round of bidding for selling its gas will happen in early May. In an analyst presentation, the company said developing the MJ field was on track for commissioning by the third quarter of FY23.
 
Average production in the quarter ended March 2021 was 7.06 MMSCMD (million standard cubic metres a day) from KG-D6 while coal bed methane production was 0.85 MMSCMD.
 
Price realisation for KG-D6 on a GCV (gross calorific value) basis was $3.99 per MMBTU during January-March 2021, which was 14 per cent higher than in the previous quarter, when it was $3.50. The price was $3.23 in January-March 2020.
 
Price realisation for coal bed methane was $5.2, 22.6 per cent higher than the $4.24 in the third quarter of FY21 but lower than the $6.92 in the same quarter of the previous year.
 
Giving an outlook for the coming quarter, it said gas price realisation was to be higher in FY22. KG-D6 production was ahead of plan with the R-Cluster commencing output in December 2020.
 
The peak production of 12.8 MMSCMD was reached in mid-April 2021, while a satellite cluster field commenced output in April 2021, two months ahead of plan.  Combined production in these two fields is expected at 18 MMSCMD, which would be 20 per cent of India’s current gas production.
 
The company’s quarter-on-quarter (QoQ) growth in revenue of 20.6 per cent during the three-month period ended March 2021 was led by the O2C segment.
 
This was primarily because of higher volumes and a sharp increase in feedstock and product prices. The QoQ higher EBITDA was led by 17 per cent growth in O2C and retail but was offset by lower other income.
 
Though there was an improvement in both O2C and the oil and gas segments, an exceptional income of Rs 797 crore in 4QFY21 was due to gains on sale of US shale assets while Rs 5,642 crore came largely from divestment in Reliance BP Mobility Ltd.
 
The company said its turnaround in the oil and gas business was because of a planned ramp-up of gas production in R-Cluster fields while satellite fields commenced production in April 2021.
 
“We are faced with another, and more severe, disruption due to the new wave of Covid in India,” said the company in its presentation.
 
According to the presentation, the whole year was, however, a story of two halves in contrast.
 
The first half of 2020-21 saw sharp demand destruction for O2C products due to the lockdown though the company maintained high operating rates in comparison to global peers by focusing on exports. Strict local lockdowns also impacted retail store operations though this was offset by a ramp-up in digital commerce.
 
The second half of the year, however, saw a sharp recovery in demand for auto fuels while supply disruptions supported margins for fuels and downstream products.
 
Retail store operations also improved from a low of 50 per to an exit rate of 95 per cent.
 
Nevertheless, the year-on-year lower revenue was due to a 29 per cent decline in the O2C business both because of lower volumes and realisations.
 
On an annual basis, the O2C business showed a 29.1 per cent decline while oil and gas showed a 26.9 per cent fall. These two saw the largest fall among the company’s all business segments. The O2C segment includes its entire refinery operations, which include fuel and petrochemical production.
 
The oil and gas segment is the upstream business of producing crude oil and natural gas. Its fuel retailing business has been hived off to Reliance BP Mobility.