Cash flow from RIL's E&P business set to overtake Reliance Retail's

Reliance Industries (RIL), India's largest company by market value, targets to commence gas production from MJ field at KG D6 by March which will increase its output by 58% to 30 million standard cubic meters a day (MMSCMD). From the financial point of view, the hydrocarbon vertical of RIL is likely to produce higher earnings before interest, tax, depreciation and amortisation (EBITDA) than the lucrative retail vertical of the group, Reliance Retail, in the next financial year, say experts.

The revenue from hydrocarbon exploration and production (E&P) business jumped 74.8% to ₹4,474 crore in the December quarter, thanks to improved gas price realisation and higher production. The average gas price realised for KGD6 was at $11.3/million British thermal unit (mBtu) in the quarter versus $6.1/mBtu in the same quarter previous year. Government had hiked the prices of gas produced from difficult fields to $12.46/mBtu from $9.92 in September.

The EBITDA of the segment almost doubled to ₹3,880 crore in the third quarter and the EBITDA margin was at 86.7%. The company enhanced its production by 6.1% to 41.9 billion cubic feet (bcf) in this period. "At the revised gas price, RIL will be able to increase its EBITDA by 50-60% to nearly Rs 6,000 crore. It will be more than what Reliance Retail achieved in the December quarter," says an executive in the know. The retail business had an EBITDA of ₹4,773 crore, which increased 24.9% year-on-year.

RIL said recently that the production from MJ Field is expected to commence by March this year. "Phase-II drilling and completion campaign for production hole drilling, lower and upper completions is in progress. Offshore installation campaign has been successfully completed," the company said. The floating production storage and offloading (FPSO) unit is currently at the field. Hook-up and offshore testing are currently underway which will be followed by pre-commissioning and commissioning activities, RIL added in its recent presentation.

"The incremental gas production from MJ field along with production from R-Cluster and Sat-Cluster is expected to deliver around 30 MMSCMD in FY24," RIL said. The company executives expect the geopolitical uncertainty and constrained supply is likely to keep gas prices firm in the near term. It will support the EBITDA growth along with incremental production, they add.

Mukesh Ambani, chairman and managing director, RIL said in the recent quarterly result announcement that the upstream business delivered robust growth with sustained production from KG D6 block along with a higher realisation. "We are on track to reach 30 MMSCMD of gas production in FY 24 after the commissioning of MJ field. This will significantly enhance India's energy security in a volatile energy market environment," he said.