PREVIEW-Reliance Inds to post muted Q2; gas pricing row eyed

* What: July-Sept earnings at India's top energy firms

* When: Reliance, ONGC on Oct. 29

* Reliance expected to be hurt by drop in refining margins

* ONGC net seen rising 7.3 pct on easing subsidy burden

By Pratish Narayanan

MUMBAI, Oct 26 (Reuters) - Weak refining margins will dent
quarterly results at Reliance Industries (RELI.BO), and a rise
in gas production at a field off India's east coast and the
resolution of a gas pricing row are key to future performance.

Billionaire Mukesh Ambani-controlled Reliance Industries
and Reliance Natural Resources (RENR.BO), led by younger
brother Anil Ambani, are embroiled in a legal battle over the
terms of a deal to sell gas to Reliance Natural at below the
price set by the government. [ID:nBOM489932]

"Most analysts have assumed Mukesh will be able to sell the
gas at the government approved price of $4.2 per mmBtu," said
R.K. Gupta, managing director of Taurus Mutual Fund.

"If the court decides otherwise, there could be a
significant impact on Reliance's future results," said Gupta,
whose holdings include several oil and gas stocks, including
Reliance.

Reliance Industries, which has interests in oil and gas
exploration, petrochemicals, refining and retail, began pumping
gas from its find in the Krishna Godavari basin in April, and
this was expected to help it offset shrinking refining margins.

But the company has said it is producing only about 60
percent of its 60 million standard cubic metres a day (mmscmd)
capacity, leading to the deferral of $100 million in monthly
revenue from May, and a delay in peak gas output of 80 mmscmd
by at least a quarter until April.

Reliance Industries imports liquefied natural gas at about
$9 per million metric British thermal unit (mmBtu) to power its
refinery in western India, a much higher price than if it were
allowed to receive gas from its own field. [ID:nBOM222788]

The government selects customers for the gas pumped by
Reliance, which sells it at the state approved price of $4.2
per mmBtu. India has selected customers for only 40 mmscmd of
gas.

In December, Reliance commissioned a new 580,000 barrels
per day (bpd) refinery next to its older 660,00 bpd plant at
Jamnagar, making it the world's largest refining complex.

Analysts said Reliance's gross refining margins (GRMs), a
key measure of profitability, would have more than halved to
$6.6 per barrel in the September quarter from a year earlier,
tracking the decline in Asia's benchmark Dubai crack margin
<REF/MARGIN1>.

"Refinery margins are important, but more important will be
the future production from the KG gas basin," Gupta said.

Reliance Industries' second-quarter results will include
those from recently acquired Reliance Petroleum, and so will
not be comparable to last year's figures.

ONGC

State-run explorer Oil & Natural Gas Corp (ONGC.BO) is
expected to report net profit rose for the first time in five
quarters, on an easing in its subsidy sharing burden.

The firm is required to partially subsidise the sale of
fuel to state-run retailers, who sell fuel at government-set,
below-market prices, which affects its profit.

Lower oil prices compared with a year earlier will help the
company, which contributes about two-thirds of India's oil
output, even though demand for crude oil has not risen
significantly, analysts said.

"Lately, oil prices have started going up again," said
Gupta, who also owns ONGC shares. "This may again hurt earnings
in the future."

Following are net profit forecasts from a Reuters poll.
COMPANY NET PROFIT RANGE % CHANGE QTR SHARE P/E

(bln rupees) PERFORMANCE
Reliance 38.6 36.6-41.9 -- +8.8
21.3
ONGC 51.6 42.7-60.6 +7.3 +9.8 17.5

Poll contributors - Angel, Antique, Bank of America-Merrill
Lynch, Batlivala & Karani, Prabhudas Lilladher, Motilal Oswal,
Kotak, K.R. Choksey, Sharekhan, Religare, ICICI, CLSA,
Edelweiss.
(Editing by Jarshad Kakkrakandy and Ian Geoghegan)