Reliance Industries gains on receiving clean chit for capex of $2.5 billion till 2008

Reliance Industries is currently trading at Rs. 791.85, up by 5.00 points or 0.64% from its previous closing of Rs. 786.85 on the BSE.

The scrip opened at Rs. 786.60 and has touched a high and low of Rs. 804.30 and Rs. 786.60 respectively. So far 610935 shares were traded on the counter.

The BSE group 'A' stock of face value Rs. 10 has touched a 52 week high of Rs. 1090.00 on 05-Jan-2011 and a 52 week low of Rs. 713.55 on 26-Aug-2011.

Last one week high and low of the scrip stood at Rs. 860.30 and Rs. 782.10 respectively. The current market cap of the company is Rs. 257658.07 crore.

The promoters holding in the company stood at 44.71% while Institutions and Non-Institutions held 28.39% and 23.38% respectively.

Mukhesh Ambani-led Reliance Industries (RIL) has been granted a clean chit for capital expenditure amounting to $2.5 billion, spent up to the year 2007-08 in developing the KG-D6 gas fields as the CAG's audit did not quantify any loss to the exchequer. CAG will now inspect accounts of RIL-operated D6 block since the year 2008-09 and if it quantifies any illegitimate expenditure, the same will be recovered from the company. However, the government can recover any amount indicated by CAG in its subsequent audits from RIL, as field-life of the D6 block is more than 20 years.

Cost recovery is the key plank of the New Exploration Licensing Policy (NELP) that invites companies to bid for oil and gas blocks. Under NELP, the risk is borne entirely by energy firms. These different companies up till now have sunk about $9 billion or risk capital in Indian basins, out of which $7.2 billion has been lost in unsuccessful drilling and the companies have not got any compensation for this. 

As per this policy, companies that make commercial discoveries are allowed to recover the entire exploration and development cost from the field's revenue before sharing profit with the government. However, RIL up to March this year has spent $5.59 billion in the development of D6 gas fields out of approved capex estimate of $8.8 billion and has recovered the entire amount from proceeds of the fields.

RIL, DGH and the oil ministry have earlier been beleaguered for raising capex estimates for D1 and D3 gas fields from $2.4 billion in 2004 to $8.8 billion in 2006 for doubling the estimated output from 40 million standard cubic meters per day to 80 mmscmd and also citing global surge in the devolvement cost of the deepwater block. To ascertain facts, the then oil minister Murli Deora asked CAG to scrutinise accounts of private oil and gas operators, including RIL's D6 block.

After the draft CAG report apprehended cost escalation by RIL in the D6 block, the oil ministry and DGH had requested CAG to give 'specific recommendations' on cost to be disallowed. But CAG did not recommend any cost to be disallowed in this case, the official said. The final CAG report on performance audit of oil and gas blocks operated by private energy firms, released in September, was also silent about cost escalation in the D6 block.