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$126 mn shale gas exit was not a distress sale, says Reliance Ind

Seven years ago, RIL had spent around $392 million to acquire the assets

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Even as Reliance Industries Ltd (RIL) sold one of its three shale gas assets at about one-third of the purchase price, the company executives said that the deal was not much of “gain or loss” as the holding costs were similar to the selling price.

Earlier this month, Mukesh Ambani-promoted firm said that Reliance Marcellus II, a subsidiary of Reliance Holdings USA has divested all of its interest in the upstream shale gas assets in north-eastern and central Pennsylvania, which were operated by Carrizo Oil & Gas, for a consideration of $126 million. Seven years ago, RIL had spent around $392 million to acquire the assets.

However, V Srikanth, joint chief financial officer of RIL, when asked about the loss incurred on selling the asset, said that the ‘holding cost’ of the asset on books was similar to the cost at which it was sold.

“So, there was not much of gain on loss,” he said during the announcement of company's financial result for the period ending September 30, on Friday.

“It was not a distress sale,” he reiterated.

On whether there were plans to sell the remaining shale gas assets in the US, he said that there is no simple answer and it will always depend on whether they are offered an attractive price for it and that the company is looking towards maximising the efficiency now.

Meanwhile, RIL also said that it has relinquished the entire contract area of two Myanmar blocks (M-17 and M-18) at the end of technical evaluation and assessment study period. As a consequence of it, now the company has no conventional oil and gas assets in the overseas market. The company had bagged the blocks in 2014.

In its international operations since 2007, RIL, at one point of time, had around 16 conventional oil and gas assets, most of which it exited in recent years, with the latest one in Peru.

Likewise, in India, the company once held 42 blocks, which have come down to seven, including two CBM blocks.

Highlighting the domestic operations, the company’s latest quarter report goes on to mention that kg-d6 block produced 0.18 mmbbl (million barrels) of crude oil and 17.7 bcf (billion cubic feet) of natural gas in second quarter of fy18, a reduction of 31% and 30%, respectively on a year-on-year (y-o-y) basis. The company blamed the fall in oil and gas production mainly on natural decline coupled with water and sand ingress resulting in shut down of wells; currently, eight wells in DI-D3 and 3 wells are under production. “All efforts to sustain well life to maximise recovery is underway,” the company said in its latest report released on Friday.

Similarly, Panna-Mukta fields produced 1.40 MMBBL of crude oil and 17.0 bcf of natural gas in 2Q of FY18, a reduction of 10% in crude oil and increase of 12% in natural gas on y-o-y basis. Lower production was mainly on account of natural field decline and temporary shift-in of wells due to asset integrity issues.

During the quarter, the coal bed methane (CBM) in Madhya Pradesh field produced 1.63 bcf of gas as compared to 0.30 bcf in first quarter in FY18. “The current production rate is 0.72 mmscmd (million metric standard cubic meter per day) with a gradual ramp up in progress.” In July this year, RIL won the bid to source CBM from its own block till March 2021.

The latest quarter results reveal that the revenues for the domestic exploration and production of oil and gas were at Rs 760 crore, up 8.4% Y-o-Y due to the commencement of CBM production. The company also received Rs 198 crore towards settlement of various long pending commercial issues relating to the sale of crude oil of Panna-Mukta field. This was offset by lower gas price realisation and declining volumes in KG-D6 and Panna-Mukta blocks.

...& ANALYSIS

  • The company executives said that the deal was not much of “gain or loss” as the holding costs were similar to the selling price
     
  • RIL has also relinquished the entire contract area of two Myanmar blocks (M-17 and M-18) at the end of technical evaluation
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