Mumbai: Reliance Industries Ltd’s (RIL’s) latest annual report sheds no new light on the future of its KG-D6 natural gas fields off India’s east coast, beyond pointing to technical issues for a decline in output.
Falling production in the offshore block in recent times has dragged down the company’s share price, with India’s upstream oil regulator asking for an explanation for the drop.
“In the oil and gas business, deep-water exploration and development operations present technological challenges and operating risks,” India’s most valued company said in its 2010-11 annual report. “An integrated development plan for all gas discoveries in KG-D6 is being conceptualized.”
RIL produced 4.584 billion cu. m of gas from the KG-D6 block in the three months ended 31 March, compared with 5.383 billion cu. m a year earlier, according to a presentation on its website.
Based on over two years of production data, the reservoirs appear to be more complex than earlier envisaged, it said in the presentation. The company hasn’t said when output will rise.
The government isn’t satisfied with RIL’s explanation for the decline, director general of hydrocarbons S.K. Srivastava told reporters in New Delhi on 21 April, without elaborating, Bloomberg reported.
The RIL scrip has tanked 9.72%, or Rs 102.85, to Rs 955.40 this year on the Bombay Stock Exchange, pacing the benchmark Sensex’s 9.7% fall. The company, with a market value of about $74 billion, has the highest weighting in the bellwether index.
One of the notes to the balance sheet shows a decline in the company’s interest in proved gas reserves during the year. In 2010-11, the company had to “delete” 5.771 billion cu. m of gas reserves. This quantity was 2.7% of its proved gas reserves at the beginning of the financial year. The company produced 9.2% of its crude gas reserves in the beginning of the year. In 2009-10, the company had added 5.353 billion cu. m to its proved gas reserves.
The so-called deletion in its oil interests is much more. The company had to delete 1.44 million tonnes (mt) of oil reserves last financial year, compared with a 1.13 mt addition in fiscal 2010. That deletion represented nearly 13% of its proven reserves.
In comparison, production from these reserves during the year was 1.38 mt, the figures show. In the last quarter of the fiscal year ended 31 March, revenue from the exploration and production business fell compared with the previous quarter, despite higher crude prices.
The report also does not indicate what RIL intends to do with its Rs 42,393 crore in cash and cash equivalents. At the same time, debt has increased toRs 67,396.68 crore, up nearly 8% from a year ago.
In financial year 2009-10, the company had reduced debt by 15.5% and analysts had expected the trend to continue this year because of improved cash flows. Indeed, RIL has reported a 59% increase in cash flow from operations to Rs 37,487.35 crore. Additionally, it received Rs 9,004 crore from BP Plc. as part of a $7.2 billion deal between the two companies.
“In FY-11, RIL took advantage of low interest rates and raised capital at historically low costs,” the annual report said. That includes $1 billion of external commercial borrowings, $1.5 billion raised by a unit called Reliance Holding USA Inc., and Rs 500 crore of debentures.
Still, investors were looking forward for more details of how the company intends to take forward the partnerships for the financial services business with DE Shaw and Co. or its planned broadband roll-out.
The company indicated it was “in the process of doubling its petrochemical business by investing across the value chain and has already commenced project implementation in the polyester chain”. These include capacity expansion across fibre intermediates such as purified terephthalic acid and polyester filament yarn.
The company invested Rs 4,156 crore in subsidiary Infotel Broadband Services Pvt. Ltd, and Rs 2,168.1 crore in two oil and gas exploration units in Mauritius.
At a consolidated level, including the numbers of its various subsidiaries, RIL’s reported net profit declined 21.2% from a year ago. However, the previous year’s numbers swelled by a one-time gain of Rs 8,605.57 crore on account of sale of Reliance shares by the Petroleum Trust. Adjusted for that, RIL’s consolidated profit after tax increased 21.9% from the previous year to Rs 19,293.68 crore.
On a stand-alone basis, the company has reported a net profit of Rs 20,286.3 crore. In other words, the subsidiaries continued to lag.
Most units in the retail business reported declines. Reliance Retail Ltd made a loss of Rs 24 crore for fiscal 2011 on a turnover of Rs 592 crore. The firm had reported profit of Rs 18.22 crore a year ago.
Reliance Fresh Ltd, the largest unit in this segment with revenue of Rs 2,513.59 crore, reported a loss of Rs 159.94 crore. Reliancedigital Retail Ltd and Reliance Hypermart Ltd, two other companies with revenue over Rs 600 crore, also posted losses in the past fiscal.
Indiawin Sports Pvt. Ltd, which owns the Mumbai Indians team in the domestic Twenty20 Indian Premier League cricket tournament, also reported a loss of Rs 15.42 crore.
Bloomberg contributed to this story.