Reliance Industries seeks gas price clarity before boosting D6 investments

By Sumeet Chatterjee and Aditi Shah

MUMBAI (Reuters) - Reliance Industries Ltd said on Monday further investment at its key gas field to reverse falling output rests on a rise in domestic gas prices, after subdued global demand for fuel narrowed its refining margins in the second quarter.

Reliance and peers such as state-run Indian Oil Corp Ltd are likely to see refining margins tighten further in the near-term as demand growth lags refining capacity additions, which analysts expect in the U.S., China and the Middle East.

Natural gas output from Reliance at its key Krishna Godavari D6 field, in which Britain's BP Plc has an equity stake, has declined to 14 million cubic metres per day (mmscmd), Alok Agarwal, its chief financial officer, said.

 

The energy conglomerate has blamed D6's falling output, which was 60 mmscmd at the close of 2010, on geological complexities, though one regulator believes it failed to drill enough wells.

Analysts have said a government decision to double domestic gas prices from April 1 is likely to give Reliance and BP an incentive to boost exploration and infrastructure spending.

"That's entirely linked to new investments," Agarwal told reporters, when asked about a likely revival in D6's output. "We need to see clarity on price before we can responsibly make investments."

Reliance, which operates the world's biggest oil refining complex in Gujarat, met analysts estimates with a 1.5 percent rise in net profit to 54.9 billion rupees in the three months to September 30.

The mean estimate of forecasts from 11 analysts surveyed by Thomson Reuters was 54.9 billion rupees.

A weaker rupee against the dollar in July through September helped boost profits at the company, which gets more than half its sales from exports, Agarwal said. The rupee fell 4.5 percent in the quarter.

GROSS MARGIN

Reliance, controlled by India's richest man Mukesh Ambani, posted an average gross refining margin of $7.7 per barrel for the quarter against $9.5 a year earlier.

Revenue rose 14.2 percent to 106.52 billion rupees, while sales from its oil and gas business fell 35 percent to 14.64 billion.

Shares of Reliance, India's second-biggest company by market value, ended up 0.8 percent ahead of the earnings statement. They have gained 3.7 percent this year, roughly in line with the rise in the main stock index.

The government may appoint an international expert to investigate a decline in output from the D6 field, the oil secretary said last month. The decline has led to supply cuts for electricity generation and other sectors.

The company's profits in coming quarters will depend mainly on an improvement of refining margins, deployment of cash and a revival of D6 basin gas output, said Jagannadham Thunuguntla, head of research at SMC Global Securities.

Reliance generates nearly 80 percent of its revenue from refining and is diversifying into consumer-focused sectors such as telecommunications and retail.

Reliance, whose telecoms start-up is the only company in India to hold nationwide permits for 4G services, plans to offer cheaper high-speed Internet and related services. The company has yet to say when it will launch services.

The unit, Reliance Jio Infocomm, has won a licence in Singapore to operate and sell fibre connectivity and offer roaming services, Reliance said on Monday.

Reliance held cash reserves of 905.40 billion rupees at the end of September and had outstanding debt of 839.82 billion.

(Editing by Christopher Cushing and David Holmes)