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UBS Investment Research
Reliance Industries
Lower volumes: RIL NAV hit could be 3-5%
Gas production could be as low as 47 mmscmd in FY13
Key takeaways from media reports on Reliance Industries’ (RIL) reply to the
Directorate General of Hydrocarbons (DGH) about KG-D6 are: 1) production from
the block could be as low as 47 mmscmd (1.66bcf/d)—38 mmscmd (1.34bcf/d)
from D1-D3 fields and 9mmscmd (0.31bcf/d) from the MA field; 2) the reservoir
profile is more complex than expected; and 3) the company is observing higherthan-
expected water cut (percentage of water in the well effluent). The company
maintains that these are estimates that can be updated on further clarity about
reservoir characteristics. Reliance has issued no official communication.
Sensitivity to volumes: downside to company’s valuation is 5%
We expect a worst-case downside of Rs50 in case gas production in FY13 and
beyond is 40mmscmd (1.41bcf/d). If production drops to 50 mmscmd then the
downside would be about Rs21 and FY14E EPS would be affected by 6.2%. This
is assuming a gas price of US$4.2/mmbtu till FY14 and US$6.3/mmbtu in FY15
and beyond.
Further drilling can only add to production after FY15
We believe that given the higher water cut, the company’s immediate focus will be
on remedial work on existing wells. Moreover, good connectivity along the main
channel where the 18 wells have been drilled suggests little upside in drilling more
wells along the channel. Further, incorporating lead times and possible drilling
programs, the five planned wells, if successful, can only be put to production in
FY15 or later.
Valuation: maintain Neutral rating with a price target of Rs1050
We value RIL on a sum-of-parts basis with each of the three businesses
contributing about a third to our price target
than previously expected
According to media reports, the DGH had been pressing Reliance for an update
on the production and work plan of its KG-D6 field. The company has given a
detailed reply to the government agency. Major takeaways are:
Production from the block could be as low as 47 mmscmd—38 mmscmd
from D1 and D3 fields and 9 mmscmd from MA field.
The reservoir profile is significantly different and more complex than
expected
The company is observing higher-than-expected water cut (percentage of
water in the well effluent)
The company maintains that these are estimates that can and will be updated on
further clarity on reservoir characteristics.
How does lower volume affect Reliance’s
valuation?
We expect a worst-case downside of Rs50 in case gas production in FY13 and
beyond is 40mmscmd (1.41bcf/d). If production drops to 50 mmscmd then the
downside would be about Rs21 and FY14E EPS would be affected by 6.2%.
This is assuming a gas price of US$4.2/mmbtu till FY14 and US$6.3/mmbtu in
FY15 and beyond.
Valuation
We value Reliance on a sum-of-parts basis with each of the three businesses
contributing about a third to our price target
We think the closure of refining capacity in Japan would cause refining and
petrochemical margins to spike, though there is little visibility on the extent and
timeline
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Industries
Lower volumes: RIL NAV hit could be 3-5%
Gas production could be as low as 47 mmscmd in FY13
Key takeaways from media reports on Reliance Industries’ (RIL) reply to the
Directorate General of Hydrocarbons (DGH) about KG-D6 are: 1) production from
the block could be as low as 47 mmscmd (1.66bcf/d)—38 mmscmd (1.34bcf/d)
from D1-D3 fields and 9mmscmd (0.31bcf/d) from the MA field; 2) the reservoir
profile is more complex than expected; and 3) the company is observing higherthan-
expected water cut (percentage of water in the well effluent). The company
maintains that these are estimates that can be updated on further clarity about
reservoir characteristics. Reliance has issued no official communication.
Sensitivity to volumes: downside to company’s valuation is 5%
We expect a worst-case downside of Rs50 in case gas production in FY13 and
beyond is 40mmscmd (1.41bcf/d). If production drops to 50 mmscmd then the
downside would be about Rs21 and FY14E EPS would be affected by 6.2%. This
is assuming a gas price of US$4.2/mmbtu till FY14 and US$6.3/mmbtu in FY15
and beyond.
Further drilling can only add to production after FY15
We believe that given the higher water cut, the company’s immediate focus will be
on remedial work on existing wells. Moreover, good connectivity along the main
channel where the 18 wells have been drilled suggests little upside in drilling more
wells along the channel. Further, incorporating lead times and possible drilling
programs, the five planned wells, if successful, can only be put to production in
FY15 or later.
Valuation: maintain Neutral rating with a price target of Rs1050
We value RIL on a sum-of-parts basis with each of the three businesses
contributing about a third to our price target
than previously expected
According to media reports, the DGH had been pressing Reliance for an update
on the production and work plan of its KG-D6 field. The company has given a
detailed reply to the government agency. Major takeaways are:
Production from the block could be as low as 47 mmscmd—38 mmscmd
from D1 and D3 fields and 9 mmscmd from MA field.
The reservoir profile is significantly different and more complex than
expected
The company is observing higher-than-expected water cut (percentage of
water in the well effluent)
The company maintains that these are estimates that can and will be updated on
further clarity on reservoir characteristics.
How does lower volume affect Reliance’s
valuation?
We expect a worst-case downside of Rs50 in case gas production in FY13 and
beyond is 40mmscmd (1.41bcf/d). If production drops to 50 mmscmd then the
downside would be about Rs21 and FY14E EPS would be affected by 6.2%.
This is assuming a gas price of US$4.2/mmbtu till FY14 and US$6.3/mmbtu in
FY15 and beyond.
Valuation
We value Reliance on a sum-of-parts basis with each of the three businesses
contributing about a third to our price target
We think the closure of refining capacity in Japan would cause refining and
petrochemical margins to spike, though there is little visibility on the extent and
timeline
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
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