GRM for the quarter touched a seven-year high of $10.6 per barrel
Despite reporting a sharp decline in its quarterly revenue, Reliance Industries (RIL) on Friday reported a 12.5% jump in its net profit at R6,720 crore in the July-September quarter, beating street estimates. This is the highest earnings the oil and gas major has reported since the time it started giving out consolidated numbers.
The surprise earnings were driven by a combination of better than expected gross refining margins (GRMs) and the total operating expenditure, which saw a sharp 40% y-o-y decline for the second quarter of fiscal 2015-16.
The oil and gas major said that GRM for the quarter touched a seven-year high of $10.6 per barrel compared to $8.3 for the same quarter last year and $10.4 for the three months to June 2015. On the back of this record GRM, the spread with Singapore GRM expanded to six-year high of $4.3 for the quarter. Analysts were expecting the company’s GRM to be in the range of $8.5-$9.3 per barrel.
Bloomberg consensus estimates had pegged the company to report consolidated net profit of R5,926 crore and topline of R66,343 crore in Q2FY16. Even after a sharp y-o-y decline of 33.8% to R75,117 crore, RIL’s net sales managed to outdo the expectations.
RIL officials said that the earnings were driven by strong downstream performance both on refining and petrochemical side and compensated for subdued performance of the upstream oil & gas business.
“Refining business performance was notable, as it benefited from a combination of high utilisation levels, advantageous crude market opportunities and strong global fuels demand. Petrochemicals segment performance reflects strong volume growth, product mix improvement and lower energy costs,” said Mukesh Ambani, chairman and managing director, RIL, in a statement.
The former two segments reported 42% and 7.2% jump in earnings before interest and tax (EBIT) in the quarter, respectively compared to last year. While EBIT margin of petchem business expanded by 300 basis points to12% , that of refining grew by 527 bps to 9%.
The management indicated that the strength in gasoline and demand from oil amidst lower prices led the performance. Being an integrated player the company enjoyed healthy performance of the pertchem business, with the utilisation of the polymer side continuing to stay near 90%.
“ Improvement in gasoline cracks, better product mix through diverse crude sourcing and robust product placement helped it achieve record GRM,” said an RIL official.
The EBIT for upstream business witnessed a sharp fall of 70% to R242 crore as domestic volumes were low and realisaitons also fell further for both crude and gas production. For the US shale business, while volume for the quarter remained flat at about 50 bcfe realisation almost halved to $2.8 per mmbtu, compared to last year.
Accounting for the sharp fall in product prices, the company reported an impairment of of $637 million (R2659 crore) for the US shale business, which brought down the gain of $713 million (R2911 crore net of taxes) it booked on sale of EFS midstream.