Reliance Industries Sees Robust Results from Recent Quarter
Commenting on the results, Chairman Mukesh Ambani said "It has been an excellent quarter for RIL. All our businesses have recorded a robust performance in a very challenging environment. I am very excited about RIL's future as we continue to commit our cash flows in expanding our existing and new businesses."
Oil & Gas (E&P):
The Company's oil and gas strategy is aimed at further enhancing the level of vertical integration in its energy business, and capturing value across the entire energy chain, while fulfilling important national priorities. For the Company, investment in oil and gas exploration and production is an opportunity to strengthen energy security of India. The Company is the largest exploration acreage holder among the private sector Companies in India with 34 domestic exploration blocks covering an area of about 331,000 square kilometres. The Company holds a 30% interest in an unincorporated joint venture with British Gas and ONGC, to develop the proven Panna-Mukta and Tapti oil & gas fields. The Company also has exploration and production rights to 5 coal bed methane blocks covering an area of about 4,000 sq.km.
In addition to its domestic portfolio, the Company has interests in one exploration block each in Yemen, and Oman. During the quarter, the Company was awarded one deepwater offshore block in Timor Leste.
In the 1st round of the New Exploration Licensing Policy (NELP-I) of Government of India, 12 exploration blocks were awarded to the Company. In the 2nd round, Reliance won another 4 exploration blocks. The Company was awarded 9 blocks under the 3rd round of NELP and one block under the 4th round of NELP. In the last round of NELP bidding (NELP V), the Company was awarded 5 exploration blocks. The production sharing contracts (PSC) have been signed and Petroleum Exploration License (PEL) for all these blocks has been obtained.
The Company and various partners, including ONGC Ltd. and Oil India Ltd., were awarded two exploration blocks prior to NELP. The Company has also acquired the operating rights of four exploration blocks in India from Tullow Oil plc, a UK Company.
Three blocks out of the above-awarded blocks have been relinquished as the expected deposits were found to be sub-economic.
During the quarter, discovery notification for MA1 well drilled in deepwater block D6 in the Krishna Godavari Basin was submitted to DGH. Testing has been done in two zones located three kilometers below sea level. More than size, this discovery signifies a large geological play that could result in future discoveries. The discovery has potential for both crude oil and natural gas.
The Company had struck oil in the shallow water block KG III6. The commerciality of the discovery is under evaluation.
The Development Plan for discoveries Dhirubhai 1 & 3 of KGD6 block envisages initial plateau production of 40 MMSCMD from these fields with the provision of modular expansion to address future discoveries and markets. Based on the upside potential of the block, options of higher plateau production from the fields is being evaluated. This entails implementing one of the largest deep-water gas development projects in the world.
Reliance Gas Transportation Infrastructure Ltd is implementing a pipeline project for transportation of gas. The 48 inch, 1400 KM east coast to west coast pipeline will traverse the states of Andhra Pradesh, Karnataka, Maharashtra and Gujarat. The Company will exercise management control over the pipeline company without any obligation to invest in the equity of the Company.
During the quarter, the Panna-Mukta fields produced 381,997 MT of crude oil and 12,247 mmscf (347 mmscm) of gas.
The Tapti field produced 25,819 MT of condensate and 18,451 mmscf (522 mmscm) of gas during the quarter.
The exploration program in the CBM blocks of the Company is also progressing as per plan. Gas in Place (GIP) estimate of 3.65 TCF has been concurred by DGH for Sohagpur East and West Blocks. Plans are being made to produce commercial CBM for the first time in the country by 2009.
In the Yemen onshore block where the Company had oil discoveries, the development plan was approved by Ministry of Yemen. A total of 7 development wells have been drilled so far.
In the Oman offshore block where the Company is the Operator, the existing seismic data has been collected and 2D reprocessing of data is underway.
Refining & Marketing (R&M)
Reliance operates a 660 kbpsd refinery at Jamnagar, which is the world's third largest refinery at any single location, with associated petrochemical integration and a Nelson complexity index of 11.3.
During the period under review, the domestic demand for petroleum products increased by 3.9% against 2.1% demand reduction in the first quarter of last year mainly due to higher demand growth in aviation turbine fuel, diesel and gasoline.
The consumption of HSD, which accounts for more than a third of the total consumption of petroleum products, registered a healthy growth of 77%, against a reduction of 1.3% during the first quarter of the previous year. LPG demand increased by 2.7% against 0.9% growth during the same period of last year. Demand for MS grew by 7.2%. The demand of aviation turbine fuel grew by 27.6% during the quarter. Naphtha sales reduced by 6.8% and Kerosene sales increased by 0.5%.
The average prices of WTI, Brent and Dubai for the quarter were $ 70.49 per barrel, $ 69.65 per barrel and $ 64.86 per barrel respectively while the peak prices were $ 74.56 per barrel, $ 74.45 and $ 68.35 per barrel respectively.
International Energy Agency has projected a world oil product demand growth of 1.24 million bpd for 2006 against a growth in demand of 1.11 million bpd in 2005.
The refinery margins were robust in all the regions as product price increases were higher than the concomitant rise in crude oil prices, Singapore complex margins averaged 8.9 $/bbl during the quarter compared to 7.12 $/bbl in corresponding period last year.
During the period under review, Reliance recorded 91% capacity utilization at its Jamnagar Refinery and processed 7.51 million tons of crude. During the quarter, capacity utilization was impacted by a scheduled maintenance shutdown in May 2006.
The capacity utilization of the Company's refinery during the quarter, compares favorably with the utilization rates for other refineries, both in India and abroad, which were 87% for North America, 85% for Europe, and 86% for Asia Pacific region.
Exports of refined products touched US$ 2.26 billion demonstrating the Company's capability to service developed markets across the globe.
The period witnessed, a huge pressure on the Company's retail marketing business as a result of unprecedented rise in the crude oil prices and inadequate increase in selling prices of gasoline and diesel.
Government of India has allowed PSU marketing companies to increase prices of HSD and MS by Rs 2/ltr and Rs 4/ltr respectively in the first week of June. Through this price increase, approximately 16% of the burden of under-recoveries was passed on to the consumers. For the balance significant portion of the under-recoveries, the Government decided to compensate the PSU oil companies through issue of Oil Bonds and assistance from upstream producers.
Private sector marketing companies, including the Company, which have a substantial market share, were unfortunately not included in the scheme of Oil Bonds or upstream assistance. The Company has made representations to the Government for compensation at par with oil PSUs to offset the losses being incurred in retail marketing.
The non level playing field created by the Government subsidy scheme to the oil PSUs, has left the Company with no other option but to increase its retail selling prices, the Company's current retail price is higher by Rs. 2.5/ltr compared to PSU selling prices and this has resulted in a drastic drop in market share of the Company at its retail outlets. Even with this differential in price, the Company is incurring substantial under-recoveries in retail marketing.
While the Company remains committed to the petroleum retail sector, a lack of level playing field between public sector and private sector marketing companies remains an area of concern. Reliance's substantial investment in a world-class retail network is underutilized due to controls on domestic prices of transportation fuels, apart from a direct impact on all stakeholders including dealers, consumers and employees.
In the petrochemical business the Company has a very competitive portfolio with leadership position in costs and integration that provides a differentiated value proposition to all its customers. The Company is investing in people, processes and technology to provide superior returns through the cycle.
During the quarter under review, petrochemical prices remained strong, primarily backed by firm crude oil and naphtha prices. Margins for majority of petrochemical products were lower compared to previous year mainly on account of higher feed stock prices.
The domestic demand for both polyester and polymer products remained robust during the quarter, with polyester demand registering a growth of 17% and polymers recording a growth of 14%, compared to the corresponding previous quarter.
Reliance, is the world's largest producer of polyester fibre and yarn with a combined capacity of 2 million tones after the recent commissioning of 550,000 tons per year new polyester capacity. Reliance has a domestic market share of 56% in, PFY, PSF and PET.
During the quarter, production volumes of PFY, PSF and PET increased by 29% to 361,000 tons due to commissioning of polyester facilities at Hazira and Patalganga. The recently commissioned polyester facilities are operating at high utilization rates and production is being absorbed in domestic and international markets.
Reliance has maintained its focus on specialty products, 56% of PSF production and 32% of PFY production represented niche products. With the integration of Trevira, Reliance has now the most diversified portfolio in polyester across commodity, specialty and niche products.
Reliance is one of the largest manufacturers of polyester intermediates in the world. Reliance is world's 4th largest producer of PX, 5th largest producer of MEG and 7th largest producer of PTA. Reliance's domestic market share in PX, PTA and MEG is 81%.
During the quarter, production of PX, PTA and MEG, at 886,000 tons increased by 11% compared to corresponding quarter last year. The Company commissioned a 730,000 tons per annum PTA plant at Hazira in July 2006.
Reliance is the world's 7th largest manufacturer of PP and the largest polymer producer in India with a domestic market share of 42%.
During the quarter, production volumes of PP, PE and PVC decreased 1% to 469,000 tons primarily due to scheduled maintenance shutdown of Cracker and downstream plants at Hazira.
The Company operates one of the world's largest and most efficient, multi-feed cracker at its Hazira petrochemicals complex. During the quarter, Reliance produced 162,000 tons of ethylene, representing a decrease of 24% over corresponding previous period and 77,000 tons of propylene, representing a decrease of 23%. The decrease in production is due to the planned shut down of cracker plant during the quarter.
During the quarter, Linear Alkyl Benzene (LAB) production was 30,000 tons, higher by 3% compared to the corresponding previous quarter. Reliance has a market share of 28% in LAB.
The Butadiene plant at Hazira produced 17,000 tons. The production was lower due to the shut down of cracker.
- India's Reliance Declares 30pct Higher Refinery Capacity at Export Plant (Jan 17)
- OPEC's Output Curbs Squeeze World's Biggest Oil Refining Complex (Oct 16)
- India's Reliance Industries 2Q Profit Up 7%, Lags Estimates (Oct 13)