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RIL’s KG D-6 Fishing in Troubled Waters

January 14, 2011

As per an industry journal (Indian Petro), RIL has informed DGH that it will not be able to ramp up gas production from its KG D-6 block beyond 50 mcm/d until FY2014E. The company has highlighted that there are some serious reservoir issues including water ingression in wells, sand interference and pressure depletion.

This development, if confirmed, poses a risk to Reliance’s earnings maybe to the tune of 8% for the next 2 years FY 2012 and FY 2013. This is a great engineering problem for Reliance Industries and lets see if they can sail through this turbulence.

Analysts forsee disappointment on estimates for gas supply in India over the next 5-7 years. There are concerns on the likelihood of lower-than-expected gas production from RIL’s KG D-6 block and delay in commencement of production from RIL’s NEC-25, KG D-3 and KG D-9 blocks to beyond FY2017E.

Lets see what the management has to stay or will they let Nira Radia speak which will confirm the above analysis 😉

Update on 17th Jan – Goldman Sachs Add the Stock to BUY List with the following note,

its cyclical businesses are turning around and will likely drive an earnings surprise over the medium term. With RIL’s leverage to recovering complex refining margins and the global ethylene cycle likely to bottom out in 2HCY11, we believe two of RIL’s three core businesses are falling into place going forward. With the delay in D-6 volume ramp-up widely known and likely priced in, any positive news flow on the E&P front could further re-rate RIL’s share price.

Goldman’s 12 Month Target is Rs 1250.

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