News Hour: Reliance Industries plans to put investments in oil & gas exploration on hold

NEW DELHI/MUMBAI: The board of Reliance IndustriesBSE 1.40 % may put investments in India's oil & gas exploration assets on hold until the government agrees to get rid of a cap on the prices of natural gas and approves capital expenditure plans, two persons with direct knowledge of the development told ET.

Instead, the company will focus on three sectors - telecom, retail and petrochemicals & refining - and could invest $20-25 billion from 2012-13 till 2015-16, said the people citing board-level deliberations. They, however, declined to be identified given the sensitivity of the matter.

"We are awaiting clarity on gas pricing policies and are keen to invest (in India) once there is a firm decision," said PMS Prasad, an executive director on the board of Reliance Industries. Prasad declined to comment on the board's deliberations.

"We don't have investment figures of other companies, but we can see the reduced level of exploration and development activities to a great extent," an RILBSE 1.40 % spokesman said in response to detailed questions on the company's approach to oil & gas exploration in India. He did not respond to questions on the board's thinking, but said investor confidence in India's oil & gas sector has been impacted due to "no assurance on market price and delay/no approvals".

The move to scale down investments in new exploration and production projects in India comes even as the Mukesh Ambani-helmed company concluded an agreement with Venezuela's state oil company Petroleos de Venezuela to invest $8 billion to develop oilfields of the Orinoco Oil Strip in Caracas last week.

The Orinoco basin has so-called heavy crude oil, which is harder to process. At current prices, RIL may import crude worth $225 billion over 15 years.

Analysts tracking RIL regard the move to freeze or delay investments as a pressure tactic on the part of the company. "They are trying every trick in the book - from lobbying to repeated letters to policymakers and visits by the company's top brass to get policy clarity," one analyst said.

Sanjeev Prasad, senior executive director & co-head, Kotak Institutional Equities, was critical of the approach of India's most valuable private sector company. "Natural gas is used for power, fertiliser, industry, etc. We should compare gas prices with the preferred fuel of each one of them on a weighted average basis. Let them sell their gas overseas, if the Indian market is so unattractive. I do not understand what the fuss is all about," he pointed out, asserting that it is pointless to draw comparisons with LNG and natural gas.

"Reliance is in a tricky situation. So this is on expected lines. Without clarity on gas price, the entire risk on the capex incurred is on their books. At $4.2 per unit, the IRR (internal rate of return) on E&P is now 10-15% and the NPV (net present value) is negative. They would be better off keeping the money in a fixed deposit instead," said Gagan Dixit, oil analyst with Quant Securities.
(Source:economictimes.indiatimes.com)