RIL looks to revive upstream biz

With two of its clusters — R-Series and Satellite Series — likely to start production in the next two years, the company looks to turn around production from this business.

Mukesh Ambani-promoted Reliance Industries (RIL) is making a second attempt in hydrocarbon exploration and production (E&P) sector.

With two of its clusters — R-Series and Satellite Series — likely to start production in the next two years, the company looks to turn around production from this business.

“After five challenging years, the domestic upstream business is set to turn around next year,” RIL said in its June quarter investor presentation recently.

The company expects its first gas from the R-Cluster by mid-2020 and from the Satellite Cluster by mid-2021.

“In E&P, which now accounts for 1 per cent of earnings before interest, tax, depreciation, and amortisation (Ebitda), RIL and partner BP Plc have launched three new developments in the Krishna Godavari (KG) basin (R-Series, Satellite, and MJ development).

"They comprise 3 trillion cubic feet (tcf) of reserves, which should provide a turnaround in production from mid-2020,” analysts wrote in a Bernstein report on the company.

For the June 2019 quarter, the company reported domestic oil and gas production at 11.6 billions of cubic feet equivalent (bcf), down 35 per cent on a year-on-year (YoY) basis.

KG-D6 field produced 5.66 bcf of natural gas in the June quarter, lower by 57 per cent on a YoY basis.

Panna-Mukta oilfield saw a decline of 13 per cent in oil and 12 per cent in gas volumes, sequentially.

For the June 2019 quarter, the overall E&P business reported an Ebit loss of Rs 249 crore.

Ebit for the domestic E&P was at Rs 117 crore.

“The two new clusters will help turn around volumes. The overall financial turnaround will depend on factors like crude oil and mainly gas prices,” said an analyst with a domestic brokerage firm.

The Bernstein report has estimated a positive Ebit at Rs 650 crore from RIL’s E&P business for the company for 2020-21.

In June, RIL, along with its partner BP Plc, announced the sanction of the MJ project in Block KG-D6 on the eastern coast of India.

MJ is the third of the three new projects in the Block KG-D6 integrated development plan, development of the R-Series in June 2017, and for the Satellite Cluster in April 2018.

The total investment in these three projects is pegged at Rs 35,000 crore, and expected to develop a total of about 3 tcf of discovered gas resources.

This investment would be the company’s second attempt to get the domestic E&P segment right.

In 2008, RIL was hopeful the KG-D6 project would deliver its first gas by the second half of 2008-09 and contribute significantly to RIL’s earnings growth.

However, more than a decade later, the oil and gas business continues to languish with no significant contribution.

Whether this second bet will pay off will be clearer once production starts, believed analysts.

“They were confident when the first round of KG investment was made, but there were surprises on the production side.

"Hopefully, the company this time would have learnt its lesson,” said an analyst.

Photograph: Punit Paranjpe/Reuters