Reliance in no hurry for more U.S. shale gas JVs

By Aniruddha Basu

MUMBAI (BestGrowthStock) – Conglomerate Reliance Industries (RELI.BO: ), which announced plans this year to spend $3.4 billion on three U.S. shale gas joint ventures, is in no hurry to forge more such partnerships for now, a senior company official said.

Total spending on the three U.S. shale gas projects by Reliance, India’s most valuable listed firm, will come to about $4 billion to $4.5 billion by 2014, Chief Financial Officer Alok Agarwal said on a conference call on Sunday.

“This will all start ramping up in 2011 and hit a plateau in 2013/14 when we would have between the three partnerships drilling of about 500-600 wells per year,” he said.

“The peak net cash outflow will be most likely in 2014,” he said.

Reliance, controlled by billionaire Mukesh Ambani, has no immediate plans for a fourth U.S. shale gas partnership.

“Our next priority is to consolidate these three, get these three partnerships to work, get them to scale up, and get them to be profitable,” Agarwal said.

“We are not really in a hurry to do any new partnerships at this point of time, but if an exceptional opportunity comes across we will look at it closely,” he added.

The firm, which recently raised $1.5 billion in an issue of dollar bonds, may make further borrowings to fund investment in its shale gas operations.

“The U.S. subsidiary will be capitalized with equity from the parent company and public market borrowings as debt,” Agarwal said.

Reliance, which operates the world’s largest refinery complex and also has interests in telecoms and retail, is spending between 5 billion rupees ($112.84 million) and 10 billion rupees as capital expenditure per quarter, Agarwal said.

The firm on Saturday posted its highest quarterly profit in nearly three years, and increasing output at its main gas field is seen as key to near-term earnings growth for Reliance.

It expects margins to firm up in its petrochemicals business, with upside in refining margins also possible, Agarwal said.

“We have room for improvement in the petrochemical margins. As we see stability in both the aromatic as well as the polymer market, our expectations are these margins will improve,” he said, adding refining margins should hold up at current levels and may improve if industrial production gathers momentum.

Agarwal declined to give an outlook on when Reliance would raise output in its key gas block off India’s east coast.

Reliance started pumping gas from its KG D6 block in April last year, and the company has said it would not increase output until a full review of the reservoir was completed.

The firm is pumping about 55-60 million cubic meters of gas a day from KG D6, and the country’s oil secretary said in July that Reliance would be able to pump gas at full capacity of 80 mmscmd during the year to March 2013.

(US$=44.4 rupees)

(Editing by Tony Munroe)

Reliance in no hurry for more U.S. shale gas JVs