Refining margins help Reliance improve profit by 24%


Reliance Industries earnings increased from turning crude oil into gasoline and diesel. Reliance operates two refineries at Jamnagar in the western state that can together process 1.24 million barrels of crude every day. –Bloomberg News

New Delhi: Reliance Industries, India's biggest company by market value, reported a better-than estimated quarterly profit after earnings increased from turning crude oil into gasoline and diesel.

Third-quarter net income rose 24 per cent to Rs55 billion ($1 billion), or Rs17 a share, in the three months ended December 31 from Rs44.4 billion, or Rs13.60, a year earlier, Mumbai-based Reliance said in a filing. Profit beat the Rs50.1 billion median estimate of 25 analysts in a survey. Sales rose 10 per cent to Rs938.9 billion.

Reliance Industries chairman Mukesh Ambani is shifting focus back to processing crude as Reliance's output from India's largest natural gas block continues to wane. Economic recovery from the United States to China is expected to lift global demand for fuels that Reliance produces in the world's biggest refining complex in Gujarat state and sells overseas.

"Refining has been above estimates and its margins will be steady over the next year or so," said Neelabh Sharma, a Mumbai-based analyst with BOB Capital Markets, a unit of state-run Bank of Baroda. "Earnings will get a new boost once new projects start in about a year."

Reliance's global depository receipts in London climbed 4.1 per cent to $34.11, the highest price since February 22. The shares have increased 7.2 per cent this year, adding to last year's 21 per cent surge, the most since 2009.

Heavier crude
The stock rose 1.2 per cent to Rs900 in Mumbai trading on Friday, compared to a 0.4 per cent gain in the key Sensitive Index. The earnings were announced after the market closed. Reliance operates two refineries at Jamnagar in the western state that can together process 1.24 million barrels of crude every day. The plants can turn heavier grades of oil, which are typically cheaper, into high-value fuels.

The company earned $9.6 for every barrel of crude it processed in the quarter, compared to $6.8 a year earlier and $9.5 a barrel in the previous three months. Profit from turning Dubai crude into diesel in Singapore, an Asian benchmark, averaged $18.77 a barrel in the quarter, compared with $18.22 a year earlier, according to data from PVM Oil Associates, a London-based crude and refined-products broker. Brent crude, a benchmark oil price used by much of the world, averaged $110.13 a barrel in the three months ended on December 31, compared to $109.02 a year earlier.

Oil headed for the longest weekly rising streak in 14 months in New York after economic growth accelerated in China, the world's second-biggest crude consumer. China's gross domestic product rose 7.9 per cent in the fourth quarter from a year earlier, compared to 7.4 per cent in the previous period, the National Bureau of Statistics said on Friday in Beijing.
Petrochemical spending

Reliance is spending $8 billion to boost petrochemical capacity and $4 billion on a plant to make combustible gas to power its refineries, which will help it widen refining margins, according to its website. The company had cash and equivalents of Rs809 billion and Rs722.66 billion of debt outstanding as of December 31, according to the statement.

Gas production from the KG-D6 block in the Bay of Bengal declined 37 per cent to 275 billion cubic feet in the nine months ended December 31 from a year earlier, Reliance said. The drop was because of reservoir complexity and a natural decline in output, it said.

The company last month began drilling its first well in the KG-D6 block in more than a year, seeking to start output from new areas within the KG-D6 block. The newer fields may produce as much as 10 million cubic meters of gas a day starting 2015, according to a person familiar with the matter.

Gas rates
Reliance's plans to raise production may get a boost if the government accepts the recommendations of a panel led by Chakravarthy Rangarajan, chief of the prime minister's Economic Advisory Council. The panel wants gas rates in India to be benchmarked to global rates, which will raise prices to about $8 per million British thermal units.

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