RIL on track to invest over $24 bn in key projects by 2017

Company's key projects are on track, says Goldman Sachs

Reliance Industries is on track to invest $24.4 billion in key projects by 2017 as its oil and gas business is turning around with two new gas finds while US shale gas and retail segments are growing faster, Goldman Sachs said.

"RIL's key projects are on track, its exploration and production business is turning around with two new offshore India discoveries after a gap of two years. The regulatory environment has also improved, in our view, with an increase in domestic natural gas prices," it said in a report.

Also, its US shale oil/gas and retail segments are "growing faster than our estimates, and we believe RIL has so far shown a balanced approach in its telecom business," it said.

RIL, according to Goldman, offers the best downstream exposure in the Asian oil sector with its high quality asset base, diversified product portfolio, efficient management of inventory valuation swings and ability to fund large organic expansionary capex without taking on debt.

Last year, apart from being a top performer among Indian energy stocks, RIL also outperformed regional/global peers as well as the Indian market.

"Moreover, RIL is a key beneficiary of the weakening Rupee-US dollar exchange rates, as its revenues for all businesses except retail are in $and we estimate about 50% of the benefit of higher revenues fall to the PBT level after adjusting for higher interest payments on its $debt," it said.

Every one rupee depreciation in rupee against US dollar would lead to 2% improvement in RIL's FY14-17 net profit.

Goldman said RIL has commenced work on all the major value-enhancing projects such as petcoke gasification project and refinery off-gas cracker project (ROGC) and is in various stages of detailed engineering/ordering equipment.

"We expect the company to deliver the projects on time given that these have already got environment clearance and RIL already has land for the projects," the report said.

Goldman said the regulatory environment for RIL has also started turning positive, particularly in the E&P business where RIL has seen a series of approvals for its capex plans in recent quarters.

In addition, the government has announced an increase in natural gas prices based on an oil and international gas- linked formula that could potentially double gas prices in FY'15.

Also, the recent increase in custom duties for polymers is an indication that the government's intention is of helping domestic producers.

"Despite having the highest capex amongst its Asia peers, RIL continues to have a strong balance sheet," it added.

On the recent turnaround in the E&P business, Goldman said RIL and its partner BP plc made the first success in the KG basin block D6 in May 2013, when they encountered 155 metres of gas condensate column in a new reservoir.

"This discovery looks significant given that the largest D6 discovery had a gross hydrocarbon column of 194 mts (MA-2 well). Moreover, if this discovery leads to a new commercial reservoir, it could meaningfully add to D6 reserves," it said.

Recent gas condensate discovery in deep-water Cauvery basin in August 2013 with hydrocarbon column of 143 mts, following a similar discovery in 2007.

On RIL's US shale operations, Goldman said Marcellus shale gas is now profitable with Henry Hub moving closer to the $3.5-4 per million British thermal unit range.

"In organised retail, RIL turned EBITDA-positive in FY13 and we believe, is on track to report a net profit in FY15," it added.

On the 4G telecom venture, RIL, it said, seems to have acted prudently so far by avoiding any major cash burn in this non-core venture by getting into infrastructure tie-ups with existing telecom players rather than embarking on full-fledged telecom infrastructure building or buying assets/companies.

"RIL has also indicated that it is only looking at overseas opportunities related to its core businesses with strategic importance and synergies rather than in new/unrelated ventures," it added.