Reliance Industries Ltd., India’s biggest company by market value, may struggle to increase profit after reporting its best quarter in more than three years as natural gas production at the country’s largest field declines. Net income in the fiscal first quarter ended June 30 rose 17 percent to 56.6 billion rupees ($1.3 billion), the highest since the three months ended December 2007, boosted by gains from processing crude oil into gasoline and diesel, the Mumbai- based energy explorer and refiner said yesterday. “Profit may have peaked, at least for the next three to four quarters,” said Prashant Kamdar, an analyst with Guiness Securities Ltd. in Kolkata. “Gas output will have to rise as refining margins may remain at the current level or fall.” Reliance, controlled by billionaire Mukesh Ambani, is tapping BP Plc’s expertise to boost gas output off India’s east coast, after selling a stake in some fields to the London-based company. Refinery expansions by nations including China and India may cap margins in the next few years as capacity may exceed demand, according to Sanford C. Bernstein & Co. “Investors will carefully watch how the partnership with BP will work out,” said Deven Choksey, Mumbai-based managing director of K.R. Choksey Shares & Securities Pvt. “Everyone is waiting for clarity and timelines on gas production.” Reliance, which has the highest weighting in India’s benchmark Sensitive Index, fell 0.1 percent to 881.65 rupees at 9:18 a.m. in Mumbai trading, valuing the company at about $65 billion. The stock has declined 17 percent this year compared with a 7.7 percent drop in the index. Drop in Pressure Gas output from Reliance’s KG-D6 block declined 18 percent from a year earlier to 156.2 billion cubic feet during the quarter, the explorer said in the statement, without providing a reason. Oil output from the area dropped 41 percent to 1.41 million barrels. The explorer produced 161.9 billion cubic feet in the three months ended March 31. Production from the KG-D6 block off India’s east coast fell because of a drop in pressure and output may only increase in 2013, a person with direct knowledge of the matter said July 8. BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks operated by Reliance and to form a venture to market gas. The deal size may increase to $20 billion with future performance payments and investment. The partnership with BP will accelerate development and production from Reliance’s fields in India, Ambani said Feb. 22. Pretax Earnings India’s cabinet last week approved the deal for 21 blocks and held back two as Reliance and the government have yet to agree on work plans, Oil Minister S. Jaipal Reddy said July 22. Pretax earnings from refining surged 57 percent to 32 billion rupees, offsetting a 23 percent decline in profit from oil and gas production to 14.7 billion rupees, the company said. Earnings before tax from petrochemicals rose 7.9 percent to 22.2 billion rupees. Reliance earned $10.3 on every barrel of crude oil it turned into fuels in the quarter compared with $7.3 a barrel a year earlier, the company said. The margin was the highest since the three months ended Sept. 30, 2008, according to company filings. Reliance owns two adjacent refineries at Jamnagar in Gujarat state, which together form the world’s biggest such complex. The refineries can process a combined 1.24 million barrels a day of crude into products including gasoline, diesel and naphtha, which are exported to the U.S., Europe and Asia. The U.S. is the world’s biggest consumer of gasoline. Heavy Grades Reliance’s refineries can process heavy grades of crude, which are cheaper than lighter varieties. A wider difference between heavy and light grades of crude oil helps Reliance increase its refining margins. Crude oil in New York rose 31 percent to an average of $102.34 a barrel in the three months ended June 30 from a year earlier, according to data compiled by Bloomberg. Net sales rose 39 percent to a record 810.20 billion rupees, according to the earnings statement. The company had cash and equivalents of 457.8 billion rupees as of June 30, Reliance said. Debt was 670.4 billion rupees compared with about 674 billion rupees a year earlier. Reliance, which has interests in retail chain stores and chemicals, has bought stakes in a broadband provider, a cargo airline and a hotel chain to diversify the risks of investing primarily in the oil and gas business. The company also bought shale gas assets in the U.S. from three companies last year. To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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