Reliance Industries woes on declining production in the gas fields of D6 block are expected to cast a long shadow on its high-margin oil and gas business. Gas production from the fields has been declining continuously.
Uncertainty about the D6 gas-fields' output and the strain on the gross refining margin (GRM) as well as in the petrochemical business may take a toll on Reliance Industries' fourth quarter (of 2011-12) performance.
In fact, it may be an encore of the company's December 2011 quarter performance, when profits across all segments fell, both on sequentially and year-on-year bases. The company's overall profit declined by around 22 per cent sequentially and 14 per cent year-on-year.
Reliance (the operator) and its partners — BP and Niko — in the block are awaiting the nod of the management committee — which overseas the operations of the block — for surveying the potential of all gas discoveries made in the block. Further, the operator and its partners have also submitted a revised development plan for the MA fields in the block to drill a gas well.
Any delays in getting approval will push back target to submit an integrated development plan by October. The integrated development plan was being worked out to help increase the output from the gas fields.
RIL currently produces 34-35 mmscmd, down from around 50 mmscmd and 40 mmscmd in the March 2011 and December 2011 quarters, respectively. Of the 22 wells drilled in the D-1/D-3 fields, 12 are producing, six have been shut, and four have not been hooked up. In the MA fields, seven have been drilled, of which, one has been shut.
Refining margins
RIL expects to produce 27.60 mmscmd (20.20 mmscmd from D-1 and D-3, and 7.40 mmscmd from MA fields) in 2012-13. Once the output from the satellite fields in the block goes on stream, which is not expected before 2015-16, the operator would be able to add another 30 mmscmd (at its peak) to the production.
The refining business, which acted as a positive counter-weight in the June and September 2011 quarters for Reliance, did not do well in the December quarter due to weak refining market environment. The company's GRM — the difference between the price of the product slate and the cost of crude oil — declined from $10.1 a barrel in the September quarter to $6.8 a barrel in December.
Reliance's GRM, which traditionally enjoyed a premium over the benchmark Singapore GRM, trailed in the December quarter.
‘Other income' booster
But similar to the earlier quarters, RIL's bottomline could benefit from ‘other income', thanks to the company's growing cash pile. RIL's cash coffer increased from Rs 61,490 crore in September 2011 to Rs 74,539 crore in December.
‘Other income' accounted for around 39 per cent of the company's profit in the December 2011 quarter, up from 20 per cent in the September quarter. This scenario may continue in the March quarter, with increasing cash balance and high interest rates.