RIL beats expectations by smarter crude sourcing: Taneja

Reliance Industries (RIL) today came out with its December quarter numbers. It surprised the street with its better than expected Q3 result. The company posted a net profit of Rs 5502 crore. In an interview to CNBC-TV18, Narendra Taneja, energy expert said that it was all a result of smart crude sourcing.

Also read: Reliance beats street in Q3: Petchem, GRM outperform "After restrictions from the US and Western countries on Iran they diversified. They now source mostly from Western Africa, Latin America and Venezuela" he added. Below is the edited transcript of his interview to CNBC-TV18 Q: Can you throw some light on the crude sourcing? How do you think Reliance could have bettered and beat street expectations on GRM? Do you think it was much smarter crude sourcing from Reliance? A: Absolutely very smart crude sourcing. After restrictions from the US and Western countries on Iran they diversified. They are now sourcing most of their crude from Western Africa and increasingly more from Latin America. With Venezuela they have always enjoyed cozy relationship. Over the past seven to eight months we have seen that they are buying crude from Venezuela on extremely attractive terms. They have diversified the whole basket in terms of sourcing in such a way that all the geo-political concerns are well taken care of. At the same time they have cut out the long-term deals with certain countries like Latin America. They are now trying to do certain deals of more or less of the same line with Russia. So, if all that falls in place, the next quarter it might be a bigger surprise. In the refining business technology is a great thing. How one manages is very important. The most critical component is the money one pays for sourcing crude. It all depends on company to company relationship and how you handle them. In most big importers such as Reliance, Essar and the PSUs it all depends on negotiations. It also depends on long-term relationships and the duration of the contract that has been signed. They have sorted out new agreements, new kind of approaches with Saudi Arabia, Kuwait and Iraq. Those things are already reflecting but now the focus is more on Iraq. Hopefully that would also reflect in the next quarter and the quarter that follows. Q: All this talk about the Rangarajan Committee report and USD 8 per mmbtu by when do you see this getting crystallized, by when do you expect this pricing for FY14 or the Rangarajan Committee Report being accepted formally?
A: These are all recommendations. I am still conceded by the ministry of petroleum, ministry of finance and the Prime Ministers Office (PMO). It looks like that there is a consensus emerging to at least allow the price of gas from D6 another similar fields to maybe about USD 7-8 per unit. My own assessment is that in another four to five months this would be out. A consensus would be concluded.
It is a long process because they want to involve every single important player within the government into this. So, that there is no controversy after that. Moily is playing it very safe and the Finance Minister is doing exactly the same.
However, given the fact that gas prices world over are going through a big change. Its like, the price in the US are very different from Europe and Japan is completely different. Also, given the fact that we have got 15 different prices of gas in this country, starting from USD 2.4 per unit to USD 15.3 per unit. So, USD 8 looks like a number that would be easy for government to agree upon. Given the political scenario and given the fact that there is some push that we see in terms of reforms from the government.
Also the government wants to project that this is a government that works. The government means business, so I expect within four to five months. This means a company Reliance and British Petroleum they have already started action on it. I personally think that by September-October one would see both of these things in terms of solutions to D6 field. At the same time the pricing well settled. Q: Do you believe commodity margins are bottoming out looking at all the demand prospects? Both in terms of refining and petchem, is the improvement likely or at least stability likely from hereon?
A: Stability I would say. In oil and gas it is very difficult to take a very long-term view. However, if you look at six month or seven month it is stability. To expect more than that would be a bit unrealistic at this stage. There are some gathering of dark clouds also mostly in the context of geo-political situation. Also, gas finds in Canada, new gas finds in Argentina are a bit unsettling.
So, there is a resurgence in the hydrocarbon sector across the world and more so in the western hemisphere. In next six month if we can maintain stability that is a very good gain. Otherwise 2013, 2014 for the entire oil and gas sector is good news but a bit unsettling at the same time.