Reliance Industries Ltd. (RIL)’s billionaire Chairman Mukesh Ambani plans to spend 1.5 trillion rupees ($26 billion) over the next three years to expand business ranging from gas production to telecommunications.
The company is increasing capacity at existing plants that produce petrochemicals and will build new ones to improve margins from its refining business, Ambani told shareholders in Mumbai today. It plans to drill more wells to boost slowing oil and natural gas production, open more retail stores and start a high-speed broadband service, he said.
“Reliance has embarked on the largest investment program in its history,” said Ambani, as his mother Kokila Ambani, wife Nita Ambani and children watched. “Reliance is making significant investments is all five businesses simultaneously.” The company runs oil and gas production, refining, petrochemicals, telecommunications and retail units.
Reliance, facing declining natural gas output, is building capacities in anticipation of a turnaround, Ambani said. Operating margin at the owner of the world’s largest refining complex has declined for six straight years amid slowing demand for fuels and petrochemicals as Europe struggles to recover from a debt crisis.
The company’s shares declined as much as 1.7 percent while Ambani spoke. They traded down 1.1 percent to 793.55 rupees as of 12:24 p.m. in Mumbai, compared with a 0.3 percent decline in the benchmark S&P BSE Sensex (SENSEX) index.
“Longer-term, the Reliance story revolves around how they do on the exploration and production side of the business and also with their big projects coming onstream” in the year starting April 2015, Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc (FCAM), said in an interview today to Bloomberg TV India. “In the short term, there are some challenges for them, in particular the KG-D6 gas field.”
Production at Reliance’s KG-D6 block, billed as one of the world’s biggest gas discoveries in 2002, fell 39 percent to an average 26 million cubic meters a day in the year ended March 31, the company said in an April 16 report. Reliance has attributed the drop to unexpectedly difficult geology.
Reliance sells gas from the block at $4.2 per million British thermal units, a price that comes up for renewal in April. A panel led by Chakravarthy Rangarajan, chief of the prime minister’s Economic Advisory Council, wants rates in India to be an average of gas prices in the U.S., U.K. and Japanese imports, which may almost double it.
“The trigger for the shares is the price of gas the government will allow for Reliance,” said Kamlesh Kotak, Mumbai-based head of research at Asian Market Securities Pvt. “That’s in the government’s hands, not in Mukesh Ambani’s.”
Reliance is expanding its petrochemical capacity to 25 million metric tons a year from 15 million tons, including raising polyester capacity to 4 million tons from 1.5 million tons, Ambani said. The company is constructing a plant that will turn petroleum coke to synthetic gas, which will be used at the oil refineries to lower cost, he said.
The company has started drilling for new oil and gas pools off India’s east coast with its partner BP Plc. (BP/) Reliance on May 24 announced a “significant” gas discovery in KG-D6 after drilling the first exploration well in the area in more than four years.
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