There has been a buzz of speculation that Reliance Industries Ltd will quit the E&P sector because of its declining fortunes of this business segment. The speculation gained some credence after the reported re-deployment of some employees from the E&P sector to other divisions of the company. A couple of oil and gas veterans who had joined the company when it entered the E&P business have finally been shown the door. Many of them had lingered on in the company even though they were supposed to have retired more than a decade ago. If this business segment had been performing well, then RIL would have definitely retained their services.

The current strategy seems to be to ensure that there is no negative return from the E&P sector. With RIL failing to get the gas price it had hoped for and gas production showing no signs of improvement in the immediate future, there is a huge cloud of uncertainty over RIL’s future plans in the upstream sector.

RIL chairman Mukesh Ambani has not blamed anyone for the present plight of the E&P sector. That is not his style. He has never uttered a word against geologist Rabi Bastia who is the real culprit behind the disaster in the Bay of Bengal resulting from his massive overestimation of gas reserves in KG-D6. Bastia received the Padma Shri from the UPA government for what was billed as the largest gas discovery in 2002 but did not have the decency of returning it after the KG-D6 reserves were downgraded from the originally estimated 11 TCF to 3 TCF.

There are strong indications that Mukesh Ambani will trim the operations of the E&P sector. This is an inevitable process in the absence of revenue growth – and this is something that any sensible management will do. But the real question is whether RIL will quit the upstream sector altogether.

The latest speculation, however, springs from a poor understanding of how the Ambanis operate. Both Mukesh and brother Anil have massive egos and are loath to admit failure that will immediately be construed if they close down an operation. Just over four years ago, Mukesh had managed to rope in BP as a strategic investor in RIL’s 21 PSC s blocks at an investment of $ 7 billion – a remarkable achievement. BP chief executive Bob Dudley is still trying to persuade the Indian government to offer a better price for the gas from the deep-water field. His success can be measured from the expected announcement of an incentive price for gas from hostile regions such deep-waters, high pressure and high temperature areas.

But one thing is certain: whether or not the incentive price meets the company’s expectation, RIL will not quit the E&P sector. RIL has a few small discoveries other than KG-D6. Its attorney told the Supreme Court recently that it has 5 TCF gas already discovered but it isn’t producing it because of the un-remunerative price.

 I acknowledge that RIL’s claim regarding hydrocarbon reserves should be taken with a large dose of salt. Still, it should be able to sustain a production around 25 mmscmd provided the RIL-BP-Niko combine crafts a perspective plan to put the reserves into production. The present strategy is to wait and see how far the Modi government will go to accommodate its demand. Fortunately for RIL, the Gujarat government-owned GSPC is also lobbying for a higher price. Narendra Modi has an emotional connect with this deep-water project in the KG basin but GSPC cannot mislead the prime minister about the actual cost of production. Moreover, the prime minister cannot go out of the way to favour a Gujarat company.

ONGC also has a deep water project adjacent to RIL’s which is considered far more problematic in terms of pressure and temperature. Its CMD, D.K. Sarraf, has tended to stay away from other upstream players and has made no claims regarding the cost of production and break-even level.

Sarraf is not the first finance man to head ONGC. There were two others before him. What should be the attractive price for gas from KG basin block? If this question was lobbed to Saraf and the former ONGC CMD R.S. Sharma – who was also a finance man – I would venture to hazard that there would be a minimum difference of three to four dollars per MBTU in their assessments. I would attribute this variance to the difference in their personalities rather than a result of the actual cost of production.

This brings me to one burning question that everyone is seeking an answer to: is Narendra Modi anti-RIL? Some people have tried to create such an impression. I think that this supposition is way off the mark. Modi had not done anything to hurt RIL’s business interests. At the same time, he had not extended any specific favour to it. The arrest of RIL’s employee for possessing stolen official documents cannot be interpreted as a sign of antipathy towards the group as a whole. Let us not forget that the enforcement agencies had arrested a whole lot of people belonging to the Essar group, ADAG, Cairn and Jubilant as part of their investigations. The previous NDA government had also filed a case against RIL on the same issue.

Some observers are belatedly veering round to the view that Modi is not anti-RIL. This perception is based on the fact that the government has permitted a market-determined price for isolated and marginal oil and gas fields. This view is flawed since it has nothing to do with RIL or any other major player. This policy was in the making when the UPA was in power. The stupidity of this debate will be realised when we find not many takers for these marginal fields even after the government’s decision to grant a market-determined price.

So, let us now return to the original issue with which we started this column. I firmly believe that RIL will stay in the E&P sector. It has already made considerable profits in the shale gas project overseas. It has a few blocks in Myanmar and may pick up exploration acreage blocks again. My reading of the situation is that RIL is yet to recover from the shock of the KG-D6 disaster. It will continue to play a low-key role in the E&P sector. An understanding of the Ambani’s character is crucial to predicting the shape of things.