With production at RIL’s KG Basin continuing to drop, to below 14 mscmd, the company’s profits from the US shale investments have now become larger than those from the KG Basin. RIL’s exploration and production (most E&P revenues are from the KG Basin) revenues for Q1FY14 were R1,454 crore compared with R2,508 crore in Q1FY13 while Ebit was R352 crore versus R972 crore a year ago. By comparison, US shale revenues were R1,215 crore in Q1FY14 versus R721 crore a year ago and Ebitda was R937 crore in Q1FY14 versus R517 crore a year ago.
While RIL doesn’t report Ebitda for its E&P business, analysts put the Q1FY14 number at R750 crore based on the likely depreciation norms for the E&P business. In which case, while RIL’s likely Q4FY13 Ebitda from Indian E&P operations was R970 crore and higher than that for the US shale business’ R854 crore, this has reversed in Q1FY14 — likely E&P Ebitda was R742 crore versus R937 crore for the US shale business, which is around two-year old.
RIL’s investments in US shale, its Q1FY14 media release says, are $6 billion as of date. The company’s KG-D6 Basin investments are $10 billion — in addition, another $3.5 billion was spent on other blocks where no gas was found; company officials say another $8 billion of financing costs need to be added to this. Compared with this, it has recovered $9.2 billion from gas sales so far.
Though RIL has drawn up ambitious investment plans of $6 billion for other blocks in the KG Basin — in addition, the company estimates a financing cost of $3.5 billion and opex of $6 billion — a lot depends on the price of gas.
Company officials say it is still in the red on existing operations — it has recovered under half of what it has spent so far — and will not invest in new operations unless gas prices are raised to between $8 and $10 per mmBtu.
If that is not done, this means shale operations will continue to be more profitable than the Indian E&P ones for many years to come.
In its annual report for FY13, the company noted: “With improvement in the US gas prices and continued focus on the liquids-rich acreage in the Eagle Ford area, Reliance is expected to grow this business sustainably over the next few years.” RIL has three joint ventures