Reliance earnings as expected; E&P to do better: Taneja

Energy expert Narendra Taneja believes that the results from Reliance Industries for the June quarter were in line with the expectations. Traditional sources of crude of the company have gone through difficult times in the last three to five months and it has handled it vey well as compared to companies in the Japan and other parts of the world, he told CNBC-TV18.

However, he sees the exploration and production (E&P) business to flourish after a few quarters. Also read: RIL earnings as expected; petchem needs to improve: Tulsian Below is the edited transcript of his interview to CNBC-TV18. Q: What is your take on this gross refining margin (GRM) number of USD 8.4 per barrel, are you surprised or was this inline with your numbers? A: It is in line with the expectations. In fact, if you look at the realities in the other parts of the world, it is more or less inline I would say. Let us not forget one thing, traditional sources of crude of Reliance Industries has gone through some difficult times in the last three to five months with some regime changes in couple of countries and some other geopolitical issues in couple of other countries. When you look at the geopolitical situation in those parts of the world particularly Latin America, Reliance has handled it very well much better than much bigger oil companies in western part of the world, and Japan. So, I think more or less along the expected line, a little bit disappointment on the petchem sector but year-on-year (YoY) basis that will improve. As far as the exploration and production (E&P) business is concerned, it is very much along the expected line as that is something we should be looking at in terms of good numbers in several quarters to come. I don’t see much changes in the coming few quarters but after that E&P is going to be a shining part of the whole Reliance story but that is going to take a little longer time. _PAGEBREAK_ Q: What will be the impact of gas price hike? Ofcourse, we will have the gas price hike only from the next year. First up is do you think the formula whatever it comes to around 8-8.5 is that viable? Secondly, if it goes to say around USD 9-10 or maybe USD 11 in FY16-17 will there be a big significant jump as far as the gas volumes are concerned? Do you think that really will be the big trigger that the market is talking about? A: I think so. When you look at the gas prices and at the same time future projections and the way demand is rising for gas in the country and conditions in China, South Korea and particularly Japan, the government has taken a very considerate decision. It was taken after thorough research on the part of the government across various ministries and ofcourse also some research done outside the country by the government. At the same time, look at the E&P plans of the main operator these days, the people who are sitting in the cockpit, the British Petroleum. Overall, the picture is that is emerging is extremely positive and the policy support from the government and also whatever the tensions that we have witnessed earlier between Reliance Industries (RIL) and the various wings of the Government of India, have more or less disappeared and the government has also realised that there is no alternative. If they need to incentivise E&P in the country particularly with regard to gas they have to actually increase the price, so there seems to be – there was some opposition from some quarters within the government. But then seems to be now being taken care of the government, ministry of power has for instance changed the opinion; ministry of fertilizers whatever the concerns they have are being accommodated and at the same time the international reaction to the government policy has been extremely positive. The government has in fact now started preparing for the next round of NELP which is a very significant move. So, when you look at the overall, this will have a very good positive impact on the Reliance financials 2016 onwards and even from next financial year, you will see some significant improvement because what we gather from some of the work that has been done in the last 4-5 months at D6, the results are fantastic. Both Reliance and its partners are very satisfied with that. Reports submitted to the government are also extremely positive. So, I personally feel that USD 8.5-8.7 is going to be the price that is going to be there. But in time to come in 2016, 2017, it is going to be in the region of about USD 9.3 or USD 9.5 on a sustained basis which I think is a very good number because bulk of the capital investment as you know has been already done. The infrastructure is already in place and when it comes to capex it is only going to be in terms of finding more discoveries etc at which British Petroleum is a very competent operator.