Planned KG-D6 Investment Will Increase RIL’s Exposure To Challenging Gas Business: Moody’s

Reliance Industries Ltd.’s planned Rs 40,000 crore investment in the D6 block in the Krishna Godavari basin will increase the company’s exposure to the challenging gas business in India, said Moody’s Investors Service.

RIL and its partner BP Plc will submit its investment plans with the government before the end of 2017, and there will be progress only once the plans are approved by the government and the respective company boards, Moody’s added. BP and RIL aim to develop about 3 trillion cubic feet of resources that will result in production of an additional 30 million to 35 million cubic meters a day of gas from the D6 block between 2020 and 2022, Bob Dudley, chief executive officer of BP, said in New Delhi on Thursday.

RIL owns 60 percent interest in the project and its proportionate share of the investment will be Rs 24,000 crore.

However, relative to RIL’s total earnings before interest, tax, depreciation and appreciation of Rs 56,800 crore in the financial year 2016-17, this amount will have “little impact on its credit metrics,” according to Moody’s.

Moody’s however warned that as the annual investment amount is disproportionately higher than the cash flows being generated by RIL’s upstream segment, the project will “drain cash from the rest of the business from fiscal 2018 until production begins from these blocks.”

Moody’s also highlighted three key challenges for the gas business in India:

• Delays in regulatory approvals.
• Retrospective changes in regulations.
• Slow resolution of disputes.