Reliance's $5.7 billion debt cost rising on gas delay
Monday, 14 September 2009
MUMBAI, Sept. 13 (Bloomberg): Reliance Industries Ltd. said its cost of paying about 280 billion rupees ($5.7 billion) of debt raised to develop India's biggest gas field is increasing after it capped output waiting for the government to find new buyers.
Reliance, India's most valuable company, has lost a potential $100 million in sales each month since May because it's producing at 60 per cent of its capacity of 60 million cubic meters a day, P.M.S. Prasad, president of Reliance's oil and gas business, told reporters yesterday at the KG-D6 field in the Bay of Bengal. Reliance needs government approval to sell the gas.
The company, controlled by Mukesh Ambani, the world's seventh-richest man, is fighting a lawsuit over gas supplies from the field with Mukesh's estranged younger brother Anil Ambani. Reliance's earnings may be affected by the delay in boosting gas sales as the government waits for a resolution of the case to find additional buyers, said Deepak Pareek, a Mumbai-based analyst with Angel Broking Ltd.
"The government may be going slow on allocating additional gas because half of the peak output is under litigation," said Angel Broking's Pareek. "Reliance's estimated earnings may be hit for a quarter, and it could be longer till the court decides in its favor."
Reliance shares gained 74 per cent this year, giving the company a market value of $69 billion. The benchmark Sensitive Index of the Bombay Stock Exchange advanced 69 per cent.
The delay is "affecting" a plan to prepay the loans and cut interest costs, Prasad said. "We would've liked to repay the loans quicker," he said. "We can't and that is increasing our interest costs. We will service the debt, not default on it."
Through the 11-year life of the field, Reliance aims to invest $8.8 billion, of which it has spent about $5.8 billion, Prasad said. Beside the 280 billion rupees of debt raised from local and overseas lenders, Reliance will use its own money, he said.
The KG-D6 field may hold as much as 9.2 trillion cubic feet of gas, according to Reliance's partner Niko Resources Ltd., based in Calgary, Canada.
The government designated fertilizer and power producers as priority customers for the fuel from the field. India's Oil Minister Murli Deora said on Aug. 31 he asked the prime minister to form a new panel of ministers that will decide the additional allocation of natural gas from the KG-D6 field after a new government came to power.
"We hadn't expected we'd be held up from producing," Prasad said. Reliance is also buying liquefied natural gas for its needs because the company hasn't been allotted any gas from the field, he said.
Reliance is producing just 37 million cubic meters from the gas field, Prasad said yesterday.
Anil is trying to enforce a 2005 agreement requiring Reliance to sell natural gas from the field off the country's east coast to his Reliance Natural Resources Ltd. at 44 per cent less than the price set by the Indian government.
The accord also distributes all future gas from the KG-D6 basin between the brothers, with Reliance Industries getting 60 per cent of the fuel, according to Oil Secretary R.S. Pandey. The agreement between the brothers requires Reliance Industries to sell 28 million cubic meters of gas per day at $2.34 per million British thermal units for 17 years to Reliance Natural.
Reliance Industries has said gas from the field in the Krishna Godavari basin can't be sold at less than the $4.20 per million Btu set in 2007 by the government, which controls prices of the fuel.
Efforts to reach peak production of 80 million cubic meters may also be deferred to April next year because of pipeline constraints, Prasad said yesterday. The company aims to drill wells in six months in locations such as Oman, Kurdistan and East Timor, he said, adding it may take five years for Reliance to recover its expenditure on the KG-D6 field.
Production at the KG-D6 field, which started in April, may increase India's oil and gas output by 44 per cent and help save 10 per cent of the country's oil import bill. The development of areas in the Bay of Bengal will offset shrinking supplies from ageing domestic fields that force fertilizer-makers and power producers to use more expensive naphtha and imported gas.
Reliance, India's most valuable company, has lost a potential $100 million in sales each month since May because it's producing at 60 per cent of its capacity of 60 million cubic meters a day, P.M.S. Prasad, president of Reliance's oil and gas business, told reporters yesterday at the KG-D6 field in the Bay of Bengal. Reliance needs government approval to sell the gas.
The company, controlled by Mukesh Ambani, the world's seventh-richest man, is fighting a lawsuit over gas supplies from the field with Mukesh's estranged younger brother Anil Ambani. Reliance's earnings may be affected by the delay in boosting gas sales as the government waits for a resolution of the case to find additional buyers, said Deepak Pareek, a Mumbai-based analyst with Angel Broking Ltd.
"The government may be going slow on allocating additional gas because half of the peak output is under litigation," said Angel Broking's Pareek. "Reliance's estimated earnings may be hit for a quarter, and it could be longer till the court decides in its favor."
Reliance shares gained 74 per cent this year, giving the company a market value of $69 billion. The benchmark Sensitive Index of the Bombay Stock Exchange advanced 69 per cent.
The delay is "affecting" a plan to prepay the loans and cut interest costs, Prasad said. "We would've liked to repay the loans quicker," he said. "We can't and that is increasing our interest costs. We will service the debt, not default on it."
Through the 11-year life of the field, Reliance aims to invest $8.8 billion, of which it has spent about $5.8 billion, Prasad said. Beside the 280 billion rupees of debt raised from local and overseas lenders, Reliance will use its own money, he said.
The KG-D6 field may hold as much as 9.2 trillion cubic feet of gas, according to Reliance's partner Niko Resources Ltd., based in Calgary, Canada.
The government designated fertilizer and power producers as priority customers for the fuel from the field. India's Oil Minister Murli Deora said on Aug. 31 he asked the prime minister to form a new panel of ministers that will decide the additional allocation of natural gas from the KG-D6 field after a new government came to power.
"We hadn't expected we'd be held up from producing," Prasad said. Reliance is also buying liquefied natural gas for its needs because the company hasn't been allotted any gas from the field, he said.
Reliance is producing just 37 million cubic meters from the gas field, Prasad said yesterday.
Anil is trying to enforce a 2005 agreement requiring Reliance to sell natural gas from the field off the country's east coast to his Reliance Natural Resources Ltd. at 44 per cent less than the price set by the Indian government.
The accord also distributes all future gas from the KG-D6 basin between the brothers, with Reliance Industries getting 60 per cent of the fuel, according to Oil Secretary R.S. Pandey. The agreement between the brothers requires Reliance Industries to sell 28 million cubic meters of gas per day at $2.34 per million British thermal units for 17 years to Reliance Natural.
Reliance Industries has said gas from the field in the Krishna Godavari basin can't be sold at less than the $4.20 per million Btu set in 2007 by the government, which controls prices of the fuel.
Efforts to reach peak production of 80 million cubic meters may also be deferred to April next year because of pipeline constraints, Prasad said yesterday. The company aims to drill wells in six months in locations such as Oman, Kurdistan and East Timor, he said, adding it may take five years for Reliance to recover its expenditure on the KG-D6 field.
Production at the KG-D6 field, which started in April, may increase India's oil and gas output by 44 per cent and help save 10 per cent of the country's oil import bill. The development of areas in the Bay of Bengal will offset shrinking supplies from ageing domestic fields that force fertilizer-makers and power producers to use more expensive naphtha and imported gas.