KG worries tank RIL’s stock
July 28: Oil and gas major Reliance Industries was the top loser amongst the 30 Sensex companies, a day after delivering weak first quarter numbers. While RIL’s results were in line with market expectations, there are some concerns on ramping up of gas production from the Krishna Godavari basin.
The natural gas production from the KG basin is likely to remain flat at the current level of 60 million cubic meters per day (mmscmd) for the next 6-12 months. RIL had originally projected a volume of 80 mmscmd from the block. Production from other oil and gas discoveries from other blocks is also going slow.
Increased production of natural gas was one of the reasons RIL has managed to post a decent growth in profits. Margins from other businesses — including refining and petrochemicals — have been lower.
However, further increase in gas production is unlikely in the near future. “KGD6 gas production shall remain at 60 mmscmd for 6-12 months to optimise reservoir potential, enhancing value. Management stressed that this purely postpones ramp-up to 80 and does not suggest a lower plateau,” says Macquarie, a brokerage house. Macquarie continues to keep an ‘outperform’ rating on the stock.
Reduced gas production from the block is likely to hit earnings for the current fiscal and the next. Mumbai based brokerage Ambit has cut down the earnings forecast for FY11 and FY12 by 10 per cent and 8 per cent respectively, accounting for the lower than expected gas production. Apart from the main fields in the KG-D6 block, RIL also has made some satellite discoveries in the block. It has also made some significant discoveries in other blocks such as NEC-25.
However, production from these fields may take a while longer. “NEC-25 is also experiencing slow progress, with the government yet to approve commerciality, while the development plan for D6 satellite fields will be submitted over the next 6 months,” says Citi. The brokerage continues to maintain a ‘hold’ rating on the stock.
Post new comment