What's changed
RIL-BP announced a new E&P discovery in D6 block in KG Basin in eastern
Indian offshore after market hours on Friday, 24th May. The well, drilled in
a water depth of 1,024 mts to explore the prospectivity of a new Mesozoic
reservoir lying over 2,000 mts below the already producing reservoirs in
the D1-D3 gas fields, encountered a gross natural gas and condensate
column of 155 mts. RIL said the appraisal program for this discovery will
be launched in the coming months to define scale and quality of the field.
This marks the first E&P success for RIL-BP following 18 months of
remapping of the D6 block, helped by recent govt policy and approvals.
Implications
The announced discovery looks significant given that the largest D6
discovery had a gross hydrocarbon column of 194 mts (MA-2 well).
Moreover, if this discovery leads to a new commercial reservoir, it could
meaningfully add to D6 reserves, in our view. RIL had said they would be
mobilizing a second rig into D6 in July 2013, which would aid in further
exploration and workover operations in existing wells. As per the revised
field development plan, RIL-BP are planning to drill the next well in MA
field. Overall, we believe, this discovery further strengthens our view that
RIL’s E&P business is turning around. Moreover, we believe that a policy
move towards market driven gas pricing in the next 2-3 years could mean
that our base case gas price of US$8/mmbtu from FY15 could well be the
medium term floor with potential for earnings upside. In the 4Q analyst
meet, RIL had sounded positive on E&P on policy direction, reservoir
situation and its ability to implement planned projects.
Valuation
Reiterate Buy on RIL with 12-m SOTP-based TP of Rs1,070. We think RIL’s
capex in core segments will lift its cash returns over the medium term.
Key risks
Low refining margin; further weakness in petchem margins.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
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RIL-BP announced a new E&P discovery in D6 block in KG Basin in eastern
Indian offshore after market hours on Friday, 24th May. The well, drilled in
a water depth of 1,024 mts to explore the prospectivity of a new Mesozoic
reservoir lying over 2,000 mts below the already producing reservoirs in
the D1-D3 gas fields, encountered a gross natural gas and condensate
column of 155 mts. RIL said the appraisal program for this discovery will
be launched in the coming months to define scale and quality of the field.
This marks the first E&P success for RIL-BP following 18 months of
remapping of the D6 block, helped by recent govt policy and approvals.
Implications
The announced discovery looks significant given that the largest D6
discovery had a gross hydrocarbon column of 194 mts (MA-2 well).
Moreover, if this discovery leads to a new commercial reservoir, it could
meaningfully add to D6 reserves, in our view. RIL had said they would be
mobilizing a second rig into D6 in July 2013, which would aid in further
exploration and workover operations in existing wells. As per the revised
field development plan, RIL-BP are planning to drill the next well in MA
field. Overall, we believe, this discovery further strengthens our view that
RIL’s E&P business is turning around. Moreover, we believe that a policy
move towards market driven gas pricing in the next 2-3 years could mean
that our base case gas price of US$8/mmbtu from FY15 could well be the
medium term floor with potential for earnings upside. In the 4Q analyst
meet, RIL had sounded positive on E&P on policy direction, reservoir
situation and its ability to implement planned projects.
Valuation
Reiterate Buy on RIL with 12-m SOTP-based TP of Rs1,070. We think RIL’s
capex in core segments will lift its cash returns over the medium term.
Key risks
Low refining margin; further weakness in petchem margins.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
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