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Reliance Industries (RIL)
Energy
Is the pressure fine? Mustang Engineering’s press release about RIL awarding it a
contract for the design of an onshore compression facility at KG D-6 onshore terminal
raises questions about KG D-6 reservoir behavior and production profile. The new
facility will boost natural gas pressure to meet the required inlet pressure of RGTIL’s
pipeline. We are not sure if this implies that reservoir pressure and behavior is different
from initial expectations. We await more clarity on this issue.
FEED award for onshore compression facility at KG D-6 onshore terminal to Mustang Engineering
According to a press release of Mustang Engineering, RIL has awarded it the contract to develop
the front-end engineering and design (FEED) of a gas compression system at the onshore terminal
of KG D-6 block. As per the press release of Mustang, “This onshore compression facility will be
one of the world’s largest facilities in a single location and will serve to boost the natural gas
pressure to meet the inlet operating pressure conditions of the Reliance Gas Transportation
Infrastructure Limited (RGTIL) East-West gas transmission system.”
Not sure whether this is as per field development plan (FDP) and design expectations
The fact that KG D-6 gas requires additional compression suggests that the pressure in the fields is
lower than during the initial phase of operations. We are not sure whether this is as per the FDP or
whether it is an unforeseen development. If it is the former, it is not a cause for worry. If it is the
latter, it could be a cause of concern since the reservoir pressure has dropped faster than expected
and it may impact the overall production profile versus that in the FDP.
Limited information on reasons for delay in ramp-up in production
RIL and the DGH have not offered an explanation for the delay in ramp-up of KG D-6 gas
production to 80 mcm/d. We would note reservoir modeling is very complex and RIL may simply
be gathering more data to better understand the reservoir and the full potential of the fields; trade
journals have ascribed the delay to additional studies. We dismiss speculation by a section of the
Street that RIL may have curtailed production as it would get a higher price for gas in the future.
Downside risks to earnings exist from lower-than-expected production
Various press articles have reported that RIL will produce gas at 53-54 mcm/d from the D1 and D3
fields and 7-8 mcm/d from the MA field until it has completed certain ongoing reservoir studies. It
has not given a time-frame for the same although press articles have put the same at 6-18 months.
We model KG D-6 gas production to increase to 72 mcm/d in FY2012E and 88 mcm/d in FY2013E.
Our FY2012E and FY2013E EPS will decline by 6.4% and 12.1% if gas production continues at 60
mcm/d instead of ramping up as per our expectations.
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