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• RIL indicates potential reduction in supply: RIL has reportedly
(CNBC) responded to the Directorate General of Hydrocarbons (DGH)
on the issue of gas output from the KG-D6 field, saying that unless
changes are implemented in the block, output is likely to decline further.
We estimate a ~11.5% cut in EPS with lower output, all else remaining
equal.
• Output could drop to ~47mmscmd: In the absence of further
development inputs, output from the D1-D3 areas of the block could
drop to ~38mmscmd (from ~44 currently). Output from the MA area is
~9mmscmd.
• Additional inputs may help: RIL said the above estimates do not factor
in potential success from ongoing workover and additional physical
inputs to existing wells – which could help boost output from these
wells.
• Negative for sentiment and near term earnings…: Newsflow on the
E&P business will continue to influence stock performance. With a drop
in output (as opposed to a rise we factor), FY12 EPS could be ~11.5%
lower.
• …but should not impact value for the E&P business: BP’s entry into
the block (among others) provides a floor valuation to this business, in
our view. With large experience, and greater access to details of the
block, BP is well placed to judge the potential of KG-D6 – and would
seek to generate value for its stakeholders for the price it paid for the
assets.
• Buying opportunity: The refining business remains strong, and PX
spreads have spiked due to the supply disruption and FM from major
Japanese producers. We estimate that a sustained rise in PX spreads (up
$220/MT w/w and likely to sustain at higher levels) could significantly
mitigate the loss of earnings from lower gas output. We re-iterate our
Overweight rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• RIL indicates potential reduction in supply: RIL has reportedly
(CNBC) responded to the Directorate General of Hydrocarbons (DGH)
on the issue of gas output from the KG-D6 field, saying that unless
changes are implemented in the block, output is likely to decline further.
We estimate a ~11.5% cut in EPS with lower output, all else remaining
equal.
• Output could drop to ~47mmscmd: In the absence of further
development inputs, output from the D1-D3 areas of the block could
drop to ~38mmscmd (from ~44 currently). Output from the MA area is
~9mmscmd.
• Additional inputs may help: RIL said the above estimates do not factor
in potential success from ongoing workover and additional physical
inputs to existing wells – which could help boost output from these
wells.
• Negative for sentiment and near term earnings…: Newsflow on the
E&P business will continue to influence stock performance. With a drop
in output (as opposed to a rise we factor), FY12 EPS could be ~11.5%
lower.
• …but should not impact value for the E&P business: BP’s entry into
the block (among others) provides a floor valuation to this business, in
our view. With large experience, and greater access to details of the
block, BP is well placed to judge the potential of KG-D6 – and would
seek to generate value for its stakeholders for the price it paid for the
assets.
• Buying opportunity: The refining business remains strong, and PX
spreads have spiked due to the supply disruption and FM from major
Japanese producers. We estimate that a sustained rise in PX spreads (up
$220/MT w/w and likely to sustain at higher levels) could significantly
mitigate the loss of earnings from lower gas output. We re-iterate our
Overweight rating on the stock.
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