RIL Asks Govt to Expedite Approvals for $7.2B BP Deal

- RIL Asks Govt to Expedite Approvals for $7.2B BP Deal

Tuesday, July 05, 2011
Knight Ridder/Tribune Business News
by Anupama Airy and Gaurav Choudhury, Hindustan Times

Amidst concerns raised by central intelligence agencies over the $7.2-billion (Rs 32,400-crore) Reliance Industries Ltd (RIL)-BP deal, RIL is pushing for speedy approvals to the deal and has cited BP's entry into India as a "major boost to the energy security of the country." Mukesh-Ambani led RIL had signed a deal to sell a 30% stake in 23 oil and gas fields to BP.

RIL's letter dated June 10, asking the petroleum ministry to "expedite approvals" for its deal with BP, comes within days of a June-1 note of the ministry of home affairs conveying concerns of intelligence agencies. The agencies had voiced concerns over the handling of a "natural resource" such as gas by a new player with BP's financial muscle, which would not only take away a large chunk of the gas marketing and transportation business of India's national gas carrier GAIL India Ltd, but will also raise the cost of oil and gas for user industries.

While conveying its "security no-objection certificate" to the RIL-BP deal, the home ministry has asked the petroleum ministry to "take into account" these observations while "considering the case."

However, RIL said that "BP's entry will add value to India's exploration and production (E&P) sector...BP's entry as an international oil and gas major with proven deep ater experience will be a major boost to the energy security of India."

RIL has rebutted the intelligence agencies' observation that it needs to be ascertained whether the New Exploration and Licensing Policy (NELP) contract has a provision of sale of assets and whether it allows BP to sell or transport gas outside the country.

The gas marketing joint venture "is not part of NELP and is governed by a different policy framework for which we will obtain necessary approvals from the authorities concerned," RIL has told the petroleum ministry.

A RIL spokesperson said the company does not want to comment on any inter-ministerial communication and the June 10 letter to the petroleum ministry was self-explanatory.

The deal marked one of the biggest foreign direct investments in a single year in India. Europe's second-biggest oil company bought a 30% stake in 23 oil and gas blocks owned by RIL by paying $7.2 billion or Rs 32,400 crore. RIL will get another $1.8 billion if it strikes more oil or gas. However, the petroleum ministry approval is a mandatory pre-requisite for the deal to go through.

Copyright (c) 2011, Hindustan Times, New Delhi

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RIL Tripled Investments in Group Companies in FY11

RIL Tripled Investments in Group Companies in FY11

Tuesday, May 10, 2011
Knight Ridder/Tribune Business News
by Aveek Datta, Mint, New Delhi

The Mukesh Ambani-controlled Reliance Industries Ltd (RIL) has used its strong cash flows to step up funding to new businesses such as shale gas and digital services, kicking off its next investment cycle.

RIL's 2010-11 annual report shows that the oil-to-yarn-to-retail conglomerate invested '7,593 crore in its subsidiaries and associate companies in fiscal 2011, almost three times the investment made in 2010. Net loans and advances given to these companies stood at '5,418.46 crore, against a receipt of '2820.43 crore from them in 2010.

Most of RIL's investments in subsidiaries and associate firms the last fiscal were driven by its fledgling shale gas operations in the US, a company official said. He did not want to be identified.

"We will augment our commitment to the Indian markets by investing in new petrochemical capacity, organized retailing and digital services," Ambani said in his letter to shareholders.

Overall, the company in 2011 made investments worth '37,651.54 crore, 62% higher than in 2010. This included a '5,897 crore investment in various mutual funds.

RIL put '2,207.70 crore in a wholly owned subsidiary, Reliance Exploration and Production Mauritius Ltd--the vehicle through which RIL holds its stakes in the three shale gas joint ventures in the US. "The investments comprise part payments that we were required to make upfront payments as well as guarantees for the deferred payments," the official said.

The increase in loans and advances are also mostly linked to the firm's shale gas venture as they have been used to make the equity payments.

RIL recorded an around 10-fold increase in the financial guarantees that it extended on behalf of associates and subsidiaries, at '21,637.59 crore. Apart from guaranteeing deferred payments for its shale gas partnerships, the company has also furnished guarantees against future cash calls to be made by the joint venture partners of its wholly owned subsidiary Reliance Holding USA Inc. to the tune of '9,409.55 crore, RIL's annual report said. Reliance Holding USA had issued bonds worth $1.5 billion ('6,705 crore today) in October.

In a span of five months till August, RIL acquired three shale gas assets in the US for a total consideration of around $3.44 billion.

"The JVs (joint ventures) are expected to accrue resources in excess of 10 tcfe (trillion cu. ft equivalent of gas) and make a meaningful contribution to our earnings within the next few years," Mukesh Ambani told RIL shareholders.

According to analysts, with the kind of cash flow that RIL is expected to generate, high levels of investment are likely in the coming quarters as well.

Reliance may have as much as $22 billion in cash and cash equivalents by 2012, including payments from BP Plc and an estimated cash profit of $8 billion in the next fiscal year, according to a 22 February report by HSBC Securities and Capital Markets (India) Pvt. Ltd.

RIL had said during the announcement of its January-March quarter financial results that it had already received an initial $2 billion from BP, which is being treated as a current liability pending regulatory approval to the deal.

"RIL will continue to show high investment figures as it has entered a number of new ventures," said S.P. Tulsian, a Mumbai-based independent stock market analyst. "In shale gas, RIL might reach the maximum level of investment in three to four years, while for broadband it should happen in 24 months."

Some brokerages, however, remain sceptical about RIL's ability to deploy the cash its operations have generated.

"(RIL's) management acknowledged that utilization of cash remained a key challenge," a 22 April Citigroup Global Markets Inc. report stated.

"While RIL had already decided to use a part of this (cash) for pursuing organic growth opportunities...management reiterated that a part of this would be used for inorganic opportunities as well," Citi analysts Saurabh Handa and Graham Cunningham noted.

During the last fiscal, RIL also made a major investment of '4,155.99 crore in Infotel Broadband Services Ltd, the pan-India winner of broadband wireless spectrum that it acquired in June, marking the conglomerate's re-entry into telecom.

Interestingly, RIL did not make any new equity investment in its retail ventures. RIL's investment in the equity shares of Reliance Retail Ltd as on 31 March was '5,220 crore, the same as at the end of fiscal 2010.

Tulsian said RIL's retail arms did not receive any fund infusion as either the firm was going slow on retail expansion or they may have started generating enough cash on their own and could have even achieved cash break-even, though they reported net losses for the last fiscal.

After reaping the benefits of its last value creation cycle in 2009-10 by redeeming investments in subsidiaries and associates to yield '6,482.55 crore, there was negligible sale of similar investments 2011.

Over the last fiscal, RIL's shares have underperformed the broader market. Share prices of RIL lost 2.5% in 2010-11, while the benchmark equity index of the Bombay Stock Exchange, Sensex, gained 10.94%.

On Monday, RIL's share price gained 0.31% to close at '958.35 per share, while the Sensex rose 0.05% to close at 18,528.96 points.

Copyright (c) 2011, Mint, New Delhi. Distributed by McClatchy-Tribune Information Services.

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India, RIL in Proxy Fight Over KG-D6 Output Decline - Bernstein

India, RIL in Proxy Fight Over KG-D6 Output Decline - Bernstein

Thursday, May 05, 2011
Asia Pulse Pte Ltd

India's Reliance Industries wants a hike in the price of natural gas to resume drilling in the KG-D6 fields, which have seen a sharp drop in output due to drilling of less wells than committed, investment research group Sanford C Bernstein & Co said.

"We believe that RIL doesn't believe it is worth its while to invest additional capital in drilling wells when the price at the beach remains at US$4.20" per million British thermal units, Neil Beveridge, a Hong Kong-based analyst for Bernstein, said in a report on Thursday.

Gas output from the Dhirubhai-1 and 3 fields in the KG-D6 block had steadily risen to 53 million standard cubic meters per day in March last year, but have dropped to below 42 mmscmd now instead of rising to the projected level of 61 mmscmd.

Another 8 mmscmd is produced from the MA field in the same block, taking the total output from KG-D6 to about 50 mmscmd.

The fall in output due to drilling of less wells had earned RIL the ire of the government and the regulator DGH.

While the DGH is pressing RIL to drill more wells outside the main channel that is currently producing, the government is pressuring RIL by directing it to supply gas to priority sectors like fertilizer and power and cut off sales to refineries and petrochemical plants, including its own.

"We believe that this is a proxy fight between the government and RIL," Bernstein Research said.

"Lower production output is primarily a function of the hiatus in development drilling," it said. "While it seems likely that the reservoir is more complex than originally anticipated, performance on a per well basis has not been too dissimilar to the original field development plan.

"Instead, the lower number of development wells drilled (18 versus 22 planned) is primarily the reason for the under-performance," it said.

Bernstein said completion of Phase - I drilling plus initiation of Phase-II drilling, when the total number of wells could reach up to 50, would restore output growth.

"We believe that the natural rate of the decline in production for the KG-D6 wells is around 20 percent annually, or around 5 percent per quarter, not substantially different from similar fields around the world," it said.

"In case RIL doesn't take any more action on the drilling of wells and connecting those to the reservoir and continues operating with 18 wells, we expect the production to reach a level of around 37-38 mmscmd by FY'2013," Bernstein said.

The government has asked the company to drill 11 wells by the fiscal-end to take the total number to 31 as had been planned when RIL won approval for investing $8.8 billion, S.K. Srivastava, the director general of the country's oil regulator, had said earlier this week.

RIL will submit a drilling plan in two weeks, he had said on May 2.

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RIL Holds Ground Amid Govt Scrutiny

RIL Holds Ground Amid Govt Scrutiny

Wednesday, May 04, 2011
Knight Ridder/Tribune Business News

Reliance Industries drew flak from the oil ministry and its regulatory arm for exploration activities, Directorate General of Hydrocarbons, for not doing enough to ramp up gas production to the level projected by the company from its Andhra offshore fields.

At a meeting to vet investments into the fields made in the nine months of 2010-11, the two sides differed on measures to increase production. The government side insisted Reliance drill two more wells and operationalize two others that it has drilled but not connected to the pumping grid.

Reliance countered by saying more wells would only drain the same reservoir and not solve the problem of falling pressure in the existing wells. The company has drilled 20 wells against 22 approved in the field's development plan. Two of the wells have not been put into operation.

Production from the fields has dropped to some 41 mcmd, forcing the government to curtail supplies to non-essential industries such as petrochemicals and refineries and ensure earmarked quantities of gas to priority sectors like power and fertilizer units.

Director general of hydrocarbons S K Srivastava said Reliance and its Canadian partner Niko Resources had in the FDP (field development plan) committed to drill 31 wells in D1 and D3 fields in the KG-D6 acreage by April 2012 to raise output to 80 mcmd (million cubic metres per day).

"We have suggested that they meet whatever commitment (they made) in the approved FDP," Srivastava said. "They will come back with a proposal (on drilling more wells)."

Another meeting will be held in 2-3 weeks, Srivastava said. Sources said that DGH at the meeting tried to push a proposal that Reliance be disallowed to recover part of its $9 billion investment proposed in the fields but it had to back off when it was pointed out that the contract with the government did not have such a provision.

Reliance had built production facilities to support 80 mcmd of production. So, DGH wanted cost-recovery of only two-third of the capital spent in building those facilities.

PSC allows operator to recover investment made in developing a field before sharing profits among the stakeholders, including the government. But any move to change cost recovery norm would be possible only through an amendment to the contract, which can be done only with the approval of Parliament.

Copyright (c) 2011, The Times of India. Distributed by McClatchy-Tribune Information Services.

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