Reliance Industries on Friday sought an early revision of gas prices and urged the government to quickly resolve what it termed as “legacy issues” over its production-sharing contracts for discovered hydrocarbon.
Pointing out that Reliance Industries was a pioneer in deep-water production of oil and gas, Chairman Mukesh Ambani told shareholders that the company was trying hard to raise output from the challenging areas in the Krishna-Godavari basin, but the returns were below the cost of capital.
“We are constructively engaged with the government to resolve legacy issues in a timely manner with regards to our rights to cost recovery, gas pricing and other issues to create value for the nation and our shareholders.” He also told the 41st annual general meeting at the Birla Matoshree Auditorium here that: “We are hopeful that the government will address this policy issue in the larger interest of attracting investments in the critical E&P business.”
But Ambani also sought to play down the impact of this business on the company’s financials as of now, but said the future had promise. “Reliance had a total earnings before interest and taxes of Rs.31,835 crore last year. The contribution of the E&P business under NELP to this is about Rs.194 crore, which is about 0.6 percent of the company’s EBIT,” he said.
“Though E&P may today be very small in Reliance Industries’ overall portfolio, it has a high latent value creation potential.” In October last year, a meeting of the federal cabinet, presided over by Prime Minister Narendra Modi, had hiked the natural gas prices for normal discoveries $5.61 per unit, from $4.2 per unit, as opposed to the industry demand for at least doubling it to a little over $8 per unit.
But for all new discoveries in ultra-deep-water areas, deep-water areas and the high pressure-high-temperature areas, it said that a premium will be given, but did not spell out further details on how it will be calculated and when it will be awarded.
While shallow-water blocks are at a depth of up to 100-500 metres, deep-water blocks descend to around 1,000 metres. Those at depths beyond 1,500 metres are classified as ultra-deep-water blocks.
These are the areas where Reliance Industries has maximum discoveries. The statement issued after that cabinet meeting said the premium for Reliance Industries for its gas discoveries was under arbitration, and that the company would continue be paid the earlier price of $4.2 per unit.
The arbitration concerns the penalty imposed on the company for allegedly failing to meet output targets from the Reliance-led consortium’s specific offshore blocks. The government wanted the company to make good this shortfall vis-a-vis the terms of contract.