Reliance Industries Still In Trouble Zone

There is no sign of ending trouble for India’s largest company, Reliance Industries (Reliance). Reliance’s flagship KG-D6 gas block holds less than 80 per cent reserves than previously estimated, according to Niko Resources of Canada (Niko). Niko holds the smallest - 10 per cent - stake among two other partners – Reliance (60 per cent) and British Petroleum (BP) (30 per cent). Reliance’s D6 is India’s largest gas field. The proved plus probable reserves at D6 block have decreased to 1.93 trillion cubic feet (tcf) from about 9.65 tcf as per the previous estimates.

Previously, there have been some incidences when Reliance had announced the surrendering of blocks in the Krishna Godavari basin after it found that the blocks were not viable. Reliance had found a gas discovery in the D9 block last year. However, after drilling three exploration wells and analysing the geo-scientific data it was found that block’s hydrocarbon potential was low.

Earlier, Reliance has sold its 30 per cent stake in 23 exploration areas in the Krishna Godavari basin to Europe’s second-biggest oil firm British Petroleum Plc (BP). BP agreed to pay USD 7.2 billion in three tranches in FY12. Further, Reliance is expecting considerable benefits from BP’s deepwater exploration expertise. Recently, Reliance, BP and Niko collectively decided to dump the D4 oil block as they felt the exploration and drilling exercise was not viable compared its cost.

Reliance’s shares have been under consistent pressure after the beginning of a controversy between Reliance and the oil ministry over the declining KG-D6 output. This was followed by the oil ministry disallowing Reliance’s estimated USD 1.2 billion in developing the field on the grounds of lower gas output and under-utilisation of infrastructure. The domestic market hammered its share after Niko sharply cut the proven and probable gas reserves by almost 80 per cent. With a continuous flow of bad news for Reliance, investors are losing confidence in the stocks. The company’s management has to think hard to arrest the fall in gas production and its share price too.