The gas output from Reliance Industries’ (RIL) prolific KG-D6 basin is expected to dip further to 34 million standard cubic meters a day (mmscmd) by April, compared to 37 mmscmd at present.
According to media reports, government sources have claimed that the gas output from Reliance Industries’ (RIL) prolific KG-D6 basin is expected to dip further to 34 million standard cubic meters a day (mmscmd) by April, compared to 37 mmscmd at present.
As per the information available with the Director General of Hydrocarbons (DHG), the KG-D6 block comprises of Dhirubhai – 1 and 3 (D1 and D3) gas fields and the MA fields which produce natural gas. While output at D1 and D3 fields has been declining constantly for months with the current output at 30 mmscmd, the MA field’s gas output has remained stable at 7 mmscmd. Going forward, it is believed that the output from D1 and D3 fields may dip to 27 mmscmd levels, which is 66 per cent lower than the envisaged output of 80 mmscmd at the time of chalking the field development plan.
While RIL has attributed the fall in output to geological complexities like water and sand ingress into its wells, the oil ministry has blamed RIL over its inability to drill more wells. Consequently, RIL has been engaged in an arbitration battle with the ministry over the recovery of costs.
At the time of reporting its December quarter results, the company had stated that it was working in tandem with its JV partners to properly asses the woes faced in its basin and draw plans to tackle them. However, faced by a short window period, the company has not been able to come up with any solutions yet. Also, one of its JV partners, Niko Resources, which holds 10 per cent stake in the D6 block, had earlier this month warned that the output decline could continue at the site.
Keeping the above mentioned problems in mind, we expect RIL to face further pressure in its March quarter results. Though it seems that the refining business may fare better on a sequential basis as a result of some improvement seen in product cracks, the woes emanating from the oil and gas business will continue to haunt its financials. Readers must note that though the oil and gas business contributes only 3.6 per cent to the total revenues, it contributes 22 per cent to the company’s earnings before interest and tax (EBIT).
Having already given an ‘avoid’ rating in our latest magazine (Vol XXVII, No 5 dated February 26, 2012) we continue to urge investors to stay away from the counter as we expect it to under-perform on the bourses in comparison to other index heavyweights.