Bloomberg News

Reliance Slides as Ambani Fails to Explain Gas Output Drop

June 03, 2011

(Updates with closing share price in second paragraph.)

June 3 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company by market value, declined the most in more than two weeks after billionaire Chairman Mukesh Ambani failed to indicate when the company will increase natural gas production.

The shares fell 1.7 percent to 934.60 rupees at the close in Mumbai, the most since May 18.

Reliance has trailed the benchmark Sensitive Index, in which it has the highest weighting, since July, after failing to increase production from the nation’s biggest gas deposit. Ambani, 54, told shareholders today the company and BP Plc will jointly assess “technical issues in ramping up production” at the KG-D6 field after getting government approval for their partnership.

“In today’s speech, there wasn’t any clarity on when gas production will increase or why it’s falling,” said Apurva Shah, vice president and head of institutional research at Prabhudas Lilladher Ltd. “The absence of any news is the bad news here.”

Gas output from the KG-D6 field off India’s east coast has dropped 17 percent from a peak of about 60 million cubic meters a day set in June. Production is about 50 million cubic meters a day, according to India’s oil regulator.

Output fell because of declining pressure at the reservoir, a person with direct knowledge of the matter said April 11. The company needs another year to complete field studies, the person said. The drop in output led Reliance to post the slowest growth in profit in six quarters in the three months ended March 31.

BP Cash

Reliance will get $7.2 billion from BP, which is acquiring a 30 percent stake in 23 of its oil and gas fields in India, and may receive an additional $1.8 billion linked to discoveries.

“The amount from BP -- $9 billion -- is largely going to take care of debt,” said Deven Choksey, managing director of K.R. Choksey Shares & Securities Pvt. in Mumbai. “Every year, they will be generating $4 billion, which will help them grow in all of their verticals at a faster pace.”

The explorer and refiner had outstanding debt of 674 billion rupees ($15 billion) as of March 31 and cash and equivalents of 423.9 billion rupees, the company said in its earnings statement on April 21.

“Reliance will be completely debt-free, net of cash balances within this year 2011-12,” Ambani said. “All these reflect a robust financial position and a sound balance sheet,” which will help the company finance emerging opportunities, he said.

Spending Plan

Ambani told shareholders in 2009 that the company may become debt-free in less than two years.

The chairman made no reference to power plants in his address today. Ambani told shareholders last year that the company plans to bid for ultra mega power projects offered by the federal government, each with a capacity of about 4,000 megawatts, and make large investments in nuclear and solar energy and telecommunications.

Reliance may spend $30 billion on petrochemicals, oil and gas exploration and telecommunications in the five years ending March 2015, according to Sandeep Randery, an analyst with Brics Securities Ltd. in Mumbai, who cited estimates given by Reliance in an investor conference in February. As much as $4.7 billion may be spent on telecommunications, he said.

Ambani outlined a plan in 2009 for growth focused on five areas, including energy, renewable energy, services such as organized retailing, and improving income and skills of people in rural areas.

--With assistance from Kartikay Mehrotra in New Delhi. Editors: John Chacko, Ryan Woo

To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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