RIL set for windfall gain from oil and gas vertical
Reliance Industries (RIL) is most likely headed for bumper gains from its exploration and production vertical in FY22.
According to Harsh Dole, vice-president of IIFL, the commercialisation of key gas discoveries of RIL are no less than a game changer.
“FY22 will be a watershed year for them (RIL) in the upstream business. This is because the Deepwater R-cluster field, commercialised in December 2020, has been ramped up and they have commercialised Satellite Cluster ahead of time. Gas production will itself be substantially higher than last year,” Dole told Business Standard.
“And with expected commercialisation of MJ fields sometime in FY23, outlook on gas production volumes looks strong,” he added.
RIL expects to produce 30 million standard cubic meters per day of gas from these three fields by 2023. This will be approximately 25 per cent of India’s production and 15 per cent of demand.
According to RIL’S integrated annual report, revenue for the group’s oil and gas exploration and production business reported 33.4 per cent annual decline to ~2,140 crore.
“This was primarily due to lower volumes from conventional fields and overall lower commodity price realisation,” the annual report said. But fortunes appear to have turned around for this vertical, which will reflect strongly in 2021-2022.
“Oil prices in FY22 are expected to be higher than the last 12 months, and demand should be better as globally economies open up, and to that extent a decline in sales is not expected,” Dole said.
This may translate into higher margins if the government hikes the domestic natural gas sale price in line with global cues. Higher global oil prices would also translate to stronger revenue in the refining business, which has recently been reorganised to the oil to chemical (O2C) business.
“In the O2C business, a large part of the cost is raw material, which is essentially crude oil. To that extent, RIL’S top line should be higher,” Dole assess.
According to RIL, revenue for the O2C business fell 29.1 per cent to ~3.2trillion owing to lower volumes and price realisation across key products. This was the third consecutive year of a decline in RIL’S top line from the business. This is expected to be reversed this year.
Responding to whether a higher top line would also mean better margins, Dole said, “RIL should benefit from a pick-up global consumption of commodities — both petrochemicals and refinery products. The trend on margins, however, is likely to be a bit mixed; relative to current petrochemical margins a moderation is expected. However, this should be more than offset by improvement in the gross refinery margins.”