Reliance Industries: KG-D6: Niko annual report take-aways: Nomura Research

More details on KG-D6; 2P reserve cut of 75%
In its annual report and annual information form for FY12, Niko has
published more details on last week’s reserve cuts. For KG-D6 blocks,
the overall gas 2P reserve cut of 75% for KG-D6 is the same as our
estimate. Including 6% production, overall 2P reserve decline is 81%
from 9.8tcf at end FY11 to 1.87tcf at end-FY12.

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Key numbers for KG-D6 based on Niko’s disclosures:
 Gross proved gas reserves decline by 80% from 6.8tcf at end-FY11 to
1.3tcf at end-FY12. This includes technical revision of 4.8tcf (72%).
Niko’s cut seem far more aggressive than Reliance. RIL has disclosed
1P reserves of 3.7tcf as on March-12 for its entire acreage. We think
most of this is for KG-D6, implying 1P number of ~6.1tcf. Thus, Niko’s
1P number is ~78% lower than RIL’s 1P number, in our estimates.
 Gross probable reserve decline by 82% from 3.1tcf to 0.55tcf.
 Total 2P (proved +probable) gas reserve decline by 81% from 9.8tcf to
1.87tcf. Of the decline, 75% due to technical revision and 6% due to
production.
 Niko has recognised an impairment of $133million for KG-D6.
 Niko’s expectation of future development capex reduces by a sharp
89% from US$792mn last year to $86mn now.
 Expect KG-D6 production declines to continue. Estimated FY13 gas
production of 27mmscmd (44 in FY12) and oil production of 9kbpd 15
in FY12).
 Optimistic on gas price increase. Assumes gas price of $10-11/mmbtu
for FY15 and beyond.
Management more optimistic; but not many details
Despite sharp reserve scale down, Niko sounds very optimistic, and
expects this year to be the most exciting in its history.
 It expects KG-D6 reserves alone to more than double later this year
when development plans are approved for existing discoveries.
Including 0.35tcf of production this year, this implies adding at least
2.2tcf of 2P gas reserves, in our estimates.
 It expects companywide reserve to increase by ~260% with reserve
additions from 19 discovered fields, where development plans are
already filed or about to be filed. The implied 2P reserve addition for
Niko of 980bcfe (260% of current 2P reserve of 377bcfe) is much
higher than last week’s indicated 2C contingent resource of 600bcfe.
 There is not much disclosure or break-up from where this sharp
increase would come. But, we think most of this addition would be in
India (KG-D6 and NEC25) and Bangladesh. Assuming, 80% of
reserve addition would be for India, this would imply adding of gross
7.8tcf of 2P reserves.