Reliance Shares Gain After Ambani Says Oil Output to Increase

By Archana Chaudhary

Sept. 22 (Bloomberg) -- Reliance Industries Ltd., India's biggest company by market value, gained in Mumbai trading after billionaire Chairman Mukesh Ambani said higher oil output by the company will help reduce the country's import bill.

The shares advanced 1.8 percent to 2,091.75 rupees at 10 a.m. local time after rising as much as 3.5 percent. The stock has fallen 28 percent this year compared with a 31 percent decline in the Bombay Stock Exchange's benchmark Sensitive Index.

Ambani is investing $5.2 billion to develop the Krishna- Godavari basin, the field that's expected to more than double India's natural gas output. India, the world's second-fastest growing major economy, imports 70 percent of its energy needs and doesn't produce enough gas to meet demand from power and fertilizer makers.

Reliance's oil and gas production will surge to 550,000 barrels a day in the next six quarters from 5,000 barrels and increase India's output by 40 percent, Ambani said in Mumbai yesterday as he announced the start of oil flow from deep-water wells located off the nation's east coast.

``Reliance's oil and gas will stave off a major energy crisis for India, considering the country's growing needs,'' Giles Farrer, an analyst at the U.K.-based Wood Mackenzie Consultants Ltd., said by telephone yesterday. ``India wouldn't have been able to import the amount of gas that Reliance will be able to supply.''

India's peak electricity shortage may widen to 18.1 percent in the year to March 31 from 16.6 percent in the previous period as demand outstrips supply in the world's second-most populous nation, the government said in a report released Aug. 20.

Supply Uncertainty

Reliance ``has joined the elite club of deep-water operators, very few in the world,'' Ambani said. ``With this, RIL is also among the top 20 energy companies in the world.''

Prime Minister Manmohan Singh's government is seeking to boost India's economic growth to create more jobs and eradicate poverty in the country of almost 1.2 billion people. He said Sept. 20 that having to import oil makes the country vulnerable to the uncertainty of global prices and supplies.

``It is therefore important to undertake optimal exploitation of domestic energy resources with a view to increasing our country's energy security,'' Singh said.

The oil and gas production from the Krishna-Godavari basin will save India $20 billion in foreign exchange, Ambani said.

`Reduce Subsidies'

``This oil production will not only benefit customers but also reduce subsidies and thus release huge financial resources'' for the government to spend on development, he said.

Reliance will produce 90 cubic meters of saleable gas a day starting in January, said P.M.S. Prasad, the company's president and chief executive officer for oil and gas.

A gas pipeline connecting India's east and west coasts is almost complete, Prasad said. The pipeline connects existing gas networks of GAIL India Ltd. and Gujarat State Petronet Ltd.

``Gas will reach customers very quickly,'' Prasad said.

The delay in gas production is because of tough weather conditions and a ``tight supply chain,'' Prasad said. ``We said we would produce gas in the second half of fiscal 2009 and we will meet'' that target.

Reliance will have to wait for a court decision before starting gas sales. The Bombay High Court is hearing a case on the sale of gas to NTPC Ltd. and Reliance Natural Resources Ltd. Prasad hoped the verdict would be made in the near future and declined to comment on the course of action should it be delayed.

The company has sold oil to Hindustan Petroleum Corp., India's third-largest refiner, and may sell oil to Chennai Petroleum Corp., Prasad said. Reliance plans to look for more spot contracts for oil, Prasad said.

To contact the reporter on this story: Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net.