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Reliance Set for Worst Month in 3 Years Following Arbitration

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  • “All the bad news and difficult working conditions are coming to a head and driving the shares down,” said Kamlesh Kotak, vice president of research at Asian Markets Securities Pvt. in Mumbai. “The litigation process may delay operations at the gas field further and push the shares down some more.”Reliance is seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales, the company said November 28. The company’s action is in response to reports that the oil ministry plans to restrict the amount of costs recovered by Reliance, according to the statement.

Declining Output

  • Gas output from the field dropped to less than 45 million cubic meters a day from 60 million cubic meters in June last year. The lower production has reduced supplies to factories and cities, leading to higher and more expensive imports.Reliance is allowed to recover expenditure on exploration and production before sharing profits from the KG-D6 field with the government. The oil ministry has decided that the Mumbai- based company be allowed to recover $1.85 billion less than its investment of $5.7 billion, the Press Trust of India reported Nov. 20, citing people it didn’t identify.“The problems are being compounded by weaker refining margins,” Kotak said. “They really were depending on that for their profits.”
  • Margins of complex refiners in Singapore processing Dubai crude have narrowed to $1.14 a barrel from this year’s high of $9.6 a barrel on Oct. 5. The measure averaged $3.78 a barrel this month, compared with $6.83 a barrel in October, according to data compiled by Bloomberg.Reliance’s two adjacent refineries at Jamnagar in the western state of Gujarat can process a combined 1.24 million barrels a day. The plants have the capability to turn heavier and cheaper crude into high-value products, including gasoline, diesel and naphtha, which are sold in Europe, Asia and the US.A wider difference between heavy and light grades of crude oil helps Reliance expand its refining margins.The difference between light Brent crude oil and heavier Dubai oil has averaged $2.28 a barrel this month, 40 percent lower than $3.82 a barrel in October, according to data compiled by Bloomberg. The spread reached $7.26 a barrel on June 13, the highest in 32 months.

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