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RIL's gas output from eastern offshore fields drops 15%
RIL’s prolific D1 and D3 gas fields off the east coast have seen a 15% drop in production
to about 45–46mmscmd from 53–54mmscmd achieved in mid-2010 because of reservoir
complexities. D1 and D3 are the largest among the 20 oil and gas finds that RIL and its
Canadian partner Niko Resources have made in the Krishna Godavari basin KG-DWN-
98/3 or KG-D6 block off the Andhra coast. Lower production is due to the complex nature
of the reservoir and as it did not behave as previously modeled. Besides D1 and D3, D-26
or MA oilfield in the same block is producing about 8mmscmd as associated gas.
Together, the output from KG-D6 block currently stands at around 54mmscmd. KG-D6
block had earlier this year hit a peak of 60mmscmd after which the output has fallen. RIL
has also been forced to restrict production of crude oil from the MA field to under
20,000bpd due to high water and gas output. In fact, the field is yielding more water than
oil, and even 8mmscmd of gas in comparison to 20,000bpd of oil is considered quite
high. RIL had previously stated that it is carrying out further optimisation exercises at the
MA oilfield in view of increasing water production levels. The field has five oil-producing
wells and one gas injection-cum-gas producer well. Regards gas production, RIL will have
to drill more wells to boost output to the approved peak of 80mmscmd. Currently, 18 wells
on D1 and D3 have been completed and hooked to production system, but only 17 are
producing. The company is not drilling any production well at the moment as it is
concentrating on completing the mandatory appraisal of other discoveries it has made in
the block. RIL is yet to complete four out of the total 22 approved wells for phase-1 of the
D1 and D3 field development plan.
26.5mmscmd to power plants and remaining 13mmscmd to other sectors such as sponge
iron plants, LPG, CGD, petrochemical plants and refineries.
We have lowered our volume assumptions to 53mmscmd of gas output for the remaining
period of FY2011, considering the fall in gas production. As per our estimates, this will
result in mere 55paise fall in earnings for FY2011 numbers. However, we are currently not
changing our FY2012 earnings estimates as we await more clarity on the ramp-up of gas
output going ahead. Hence, we continue to maintain our Buy rating on RIL with a Target
Price of `1,260.
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