Reliance eyes energy targets in the Americas

Last Updated: Mon, Dec 12, 2011 04:28 hrs

Reliance Industries is scouting for oil investments in the Americas as it looks to increase the stake of crude production it owns to feed its refinery, a senior executive said. The company, controlled by Mukesh Ambani, is also looking to invest more in the United States shale gas sector, executive director PMS Prasad told Reuters.

"We are looking at opportunities to invest. Our shale gas business in the United States needs capital," he said in an interview. Reliance has outlined plans to spend $4 billion to $4.5 billion by 2014 on three U.S. shale gas joint ventures it entered into last year.

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Reliance's share price has fallen nearly 29 per cent this year, underperforming the broader index, on investor worries about declining output at its key offshore India gas field. This year, Reliance brought in the expertise of BP to help it on the offshore D6 block, where output is lagging targets, and the British company has said production from the field off India's east coast could rise from 2014.

BP, which paid $7.2 billion to Reliance for a 30 per cent stake in more than 20 oil and gas blocks, has said it hoped to get approvals to begin work this year. Those approvals from the Indian government are still pending.

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"Along with BP and support from the government, we want to increase production at the earliest (opportunity)," he said. Reliance, a conglomerate that is also involved in retail and financial services, must buy all the crude it uses to feed its giant Jamnagar refining complex in western India, and would like to lift its share of "equity oil" - or oil production it owns - from almost zero at present.

"If we reach 25-30 per cent of the heavy oil we need, that would be good," Prasad said.

About two-thirds of Reliance's demand is for heavy crude, and the firm is especially focused on acquiring heavy oil sources in politically stable countries, said Prasad, who did not identify specific targets.

"We're generally looking at oil, but heavy is particularly interesting to us because of the synergies," Prasad said.

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Reliance's cutting edge Jamnagar complex can handle heavy crudes, which often cost less than lighter crude options, giving it the best refining margins in the industry.

"South America is heavy oil and there is always that opportunity. US shale oil and Canada oil sands are interesting," Prasad added.

Reliance had cash of $12.6 billion and debt of $14.6 billion at the end of September. The company has plans to issue a $1 billion bond, three sources said recently.

Reliance is operating only around 600 of its 1,400 service stations in India as the government subsidises prices of diesel - the most popular transport fuel - and kerosene. Gasoline prices were liberalised in June 2010.

Prasad said benchmark Brent oil prices would have to fall to around $80-$85 a barrel from about $108 now, with the rupee at current rates, for the domestic diesel market to be attractive.

Gas output at Reliance's D6 gas block has fallen to around 42 million cubic metres a day (mscmd) from 48 mscmd in May and well below the 69 mscmd planned.

Reliance has only a four-month window to carry out work until the bad weather brought by the south-east monsoon from May 2012 forces a halt.

The company has been at odds with the government over development of the block in the Krishna Godavari KGL basin, but on Friday won assurances that no change would be made to its production-sharing contract there.

Reliance has no plans to expand its 1.2 million barrels per day (bpd) refining complex at Jamnagar, Prasad said.

The site has a 580,000 bpd export-oriented plant and another 660,000 bpd unit.

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