Reliance Industries Ltd. may buy oil fields in the Gulf of Mexico and Brazil to hedge the risk of investing in India where a dispute over pricing of gas is shaving $100 million off monthly sales.
“We put too many eggs in one basket, we put too much time into one asset,” P.M.S. Prasad, president of oil and gas business at India’s most valuable company, said in an interview at Reliance’s gas-processing terminal at Gadimoga in the southern state of Andhra Pradesh. “We might change our strategy now and look to spread our geographical and geological risks.”
Reliance, controlled by Mukesh Ambani, the world’s seventh- richest man, is locked in dispute with his estranged brother Anil Ambani about supply from India’s largest gas field. By expanding overseas the Mumbai-based energy explorer and refiner could take advantage of lower asset valuations after crude oil prices fell 54 percent from a July 2008 record, and reduce dependence on fuel sales at government-set prices in India.
“Low oil and gas prices make assets around the world more available now,” said Amit Rustagi, a Mumbai-based analyst with Antique Stockbroking Ltd. “Reliance would want to spread into areas which have investor-friendly regimes and policies.”
Reliance fell 0.4 percent to 2,132.70 rupees in Mumbai trading at 10:30 a.m. local time. The stock has gained 73 percent this year compared with a 68 percent advance in the Bombay Stock Exchange’s Sensitive Index.
‘Sheer Fun’
“We want to be in Brazil for its prospects and in the Gulf of Mexico for the sheer fun of being there,” Prasad said on Sept. 12. “The policy regimes in the Gulf of Mexico are very, very friendly.”
BP Plc on Sept. 2 said it identified a “giant” prospect called Tiber more than 9.7 kilometers (6 miles) beneath the surface of the Gulf, the biggest U.S. oil find in three years. The Gulf of Mexico accounts for 26 percent of domestic oil production in the U.S.
The discovery of the Tupi offshore field in Brazil in November 2007, which may hold as many as 8 billion barrels of oil beneath as much as 3,000 meters of water and 7,000 meters of seabed, was the largest discovery in the Americas since Mexico’s Cantarell.
Reliance is producing gas from the deepest wells in India, which are about 1,500 meters below the sea-bed at water depths of more than 1,000 meters, Prasad said.
Deep-Water Drilling
“Reliance will be welcomed as a partner rather than an operator,” Tony Regan, said a consultant for Singapore-based Tri-Zen International, who earlier worked for Royal Dutch Shell Plc’s LNG business. “The experience of producing deep-water gas in India will help them get access,” he said by telephone today.
Reliance has 11 blocks in Yemen, Oman, Kurdistan, Colombia, East Timor and Australia, according to its Web site. The explorer is producing 4,500 barrels a day from a block in Yemen.
The explorer aims to drill wells in six months in Oman, Kurdistan and East Timor, Prasad said. The company also wants to sell stakes in some of its blocks overseas including those in Oman and Colombia.
Reliance, which needs state approval to sell gas from its Indian field, is losing a potential $100 million in sales each month since May because a delay by the government in allocating buyers is forcing the company to produce at 60 percent of its current capacity of 60 million cubic meters a day, Prasad told reporters earlier at the KG-D6 field in the Bay of Bengal.
Gas Production
The company is producing 37 million cubic meters from the gas field, he said. Efforts to reach peak production of 80 million cubic meters may also be deferred to April next year because of pipeline constraints, Prasad said
Reliance plans to spend $8.8 billion over the 11-year life of the field and has borrowed 280 billion rupees ($5.7 billion) to develop the area. The delay in boosting sales for lack of government-approved buyers is increasing the interest cost on the debt because Reliance is unable to repay the borrowings as quickly as it would like, Prasad said.
“We focused too much on this block,” he said. “We should’ve put more of our rigs to drilling exploratory wells.”
The government has set the price of gas from the field at $4.2 per million British thermal units and designated fertilizer and power producers as priority customers for the fuel. India’s Oil Minister Murli Deora said on Aug. 31 he has asked Prime Minister Manmohan Singh to form a fresh panel of ministers to decide the additional allocation from KG-D6 after his government was reelected in May.
Family Accord
Mukesh’s younger brother, Anil, is trying to enforce a 2005 agreement requiring Reliance Industries to sell natural gas from the field off the country’s east coast to his Reliance Natural Resources Ltd. at 44 percent less than the price set by the Indian government for 17 years.
The accord also distributes all future gas from the field between the brothers, with Reliance Industries getting 60 percent of the fuel, according to Ministry of Oil Secretary R.S. Pandey.
Reliance Industries has said gas from the field in the Krishna Godavari basin can’t be sold at less than the $4.2 per million Btu set in 2007 by the government, which controls prices of the fuel.
POSTED BY :-
SHWETA RANI
PGDM-3RD SEM
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