Business | Oil & Gas
Reliance may raise gas output after price ruling
Top court orders fuel sale at state-set price
- Bloomberg
- Published: 00:00 May 11, 2010
- 120m new field output in cubic metres per day
- $1.5b cost of developing four more discoveries
- $600m saving by Reliance due to court decision
Mumbai: Reliance Industries, India's biggest company by market value, may speed up natural gas production after the nation's top court said the fuel should be sold at the government-approved price, an analyst said.
The Mumbai-based explorer may start production from new areas in the KG-D6 block by 2014, increasing the field's peak output to 120 million cubic metres a day, said Neil Beveridge, an analyst at Sanford C. Bernstein Ltd. in Hong Kong. That compares with Reliance's current estimate of 80 million cubic metres of peak output from KG-D6 in the Bay of Bengal, India's biggest gas field.
India's Supreme Court said May 7 Reliance Industries, controlled by Mukesh Ambani, Asia's richest man, should negotiate gas sales afresh with a company owned by estranged brother Anil Ambani, which sought to buy the fuel at a discount to the state-set price, in accordance with a family agreement. Reliance Industries has informed the nation's oil regulator of gas discoveries in eight additional areas in the KG-D6 field off India's east coast.
"The most important word is clarity," Beveridge said by telephone from Hong Kong. "Reliance can start developing smaller discoveries now which wouldn't have been viable at the discounted price."
Gain
Reliance Industries shares gained 4 per cent to Rs1,074.15 at 1.05pm in Mumbai trading, extending a 2.5 per cent increase on May 7. Anil Ambani's Reliance Natural Resources Ltd. declined as much as 10 per cent after slumping 23 per cent following the court's verdict.
Reliance Industries discovered natural gas in four additional areas at the KG-D6 field and informed the Directorate General of Hydrocarbons in February, according to two people familiar with the development. The explorer also submitted a plan to the regulator last year to develop four additional discoveries at KG-D6 at a cost of $1.5 billion (Dh5.5 billion), the two people said.
Reliance Industries may be able to raise output from the KG-D6 field by 2014, after the regulator approves the development plan, Beveridge said. Anil Ambani's planned gas-fired power plant at Dadri, about 50 kilometres east of New Delhi, may also be ready by then, he said.
The Supreme Court's decision will save Reliance Industries from an annual reduction in earnings before interest, tax, depreciation and amortisation of around $600 million, starting in two to three years, when Reliance Natural's power plants come up, Moody's Investors Service said in a statement yesterday. By then, Reliance Industries' Ebitda may increase to $9 billion to $10 billion, according to Nidhi Dhruv, associate analyst at Moody's.
Reliance Industries should start renegotiations with Reliance Natural within six weeks, according to the Supreme Court's judgment. A revised agreement should then be submitted to the company court within eight weeks of the talks starting, the court said.
The Ambani brothers will renegotiate volumes and tenure of gas to be supplied to Reliance Natural, Alok Deshpande, an analyst with Elara Capital Ltd., said in a report yesterday.
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