Mumbai: India’s largest energy group, Reliance Industries Ltd, is expected to report a second consecutive drop in quarterly profit as the global economic crisis squeezed demand and shrank refining margins.
Reliance, valued at $54 billion, should show significant growth in coming quarters from gas sales it started pumping this month from its deep-sea field off India’s east coast.
By the year-end gas output from the Krishna-Godavari Basin is expected to reach a peak production of 80 million standard cubic metres a day -- a level the upstream regulator has said can be sustained for six years.
“The major value driver going ahead for Reliance is the E&P (exploration and production) business,” said Deepak Pareek, an analyst at Angel Broking, adding the gas sales from the Bay of Bengal field would boost revenue and earnings.
“They have started exploration in prospective blocks recently. So, any new discoveries could lead to reserve accretion and in turn boost the valuation of the company,” he said.
Reliance will also benefit from a new 580,000 barrels per day (bpd) refinery, built by unit Reliance Petroleum, which was commissioned last December. The company is in the process of absorbing the subsidiary, in which it owns 70%.
Last week, the company surrendered export status and tax breaks on its old 660,000 bpd refinery due to a global slump in demand, freeing it up to sell petrol and diesel in its home market and to local state marketing companies.
Its refining margins are expected to have fallen to $8-$12 a barrel in the March quarter from $15.5 a year earlier, tracking the decline in Asia’s benchmark Dubai crack margin.
The Asian benchmark Dubai crack margin averaged $5.6 per barrel in the quarter versus $7 a year ago, data from Thomson Reuters showed.
Reliance’s refining margins are higher than the Asian benchmark as its refinery is capable of processing cheaper heavy crude to produce high value products.
January-March net profit is expected to have dropped nearly 8% from a year ago, after dropping 9.8% in October-December.
State-run explorer Oil & Natural Gas Corp is set to report a 31% rise in January-March profit as lower crude prices meant it did not have to share the subsidy burden of state-run oil marketing companies, analysts said.
India has a government-controlled fuel pricing regime, under which state-run producers such as ONGC are forced to subsidise state oil marketing companies to sell products at low prices to consumers.
“ONGC’s earnings will be limited due to a decline in crude prices in FY10 on a year-on-year basis,” Edelweiss Securities said in a note this month.