Reliance Industries an outperformer: CLSA

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Broking house, CLSA is bullish on Reliance Industries and has recommended outperformer rating on the stock.

 

CLSA report on Reliance Industries:

 

"Reliance's recently submitted revised field development plan for KG-D6 appears to confirm media reports of 50tcf of gas potential in KG-D6. The document also indicates 1.6bn barrels of potential crude in D6 - the first time Reliance has hinted at its size. Crucially though the 50tcf gas reserve estimate will get confirmed only over the next couple of years as Reliance drills the exploration prospects that it has mapped out. With these estimates already public and, in our view, priced into the stock to a large extent, incremental newsflow will be necessary to drive stock price performance from here on. That may prove challenging over the next year."

 

KG-D6 may hold 50tcf of reserves:

 

"Reliance's recently filed a revised KG-D6 field development plan. While the production upgrade to 80mmscmd was largely expected, the document also provides indications of the upside potential of the block. While gasin- place resource base for the fields evaluated by GCA stand at 35.4tcf (earlier revealed by Niko), the document indicates further upside potential of 30tcf from 19 prospects in the Pliocene and a further 9tcf from 6 prospects in the Cretaceous. Although not explicitly stated, 2P (+ best estimate) OGIP could double to 50tcf and sustain a 120mmscmd production plateau that Reliance is already designing for."

 

Confirmations are not imminent:

 

"These are only preliminary estimates, though, based on interpretation of 3D seismic data and will get confirmed only over the next couple of years as the prospects that it has mapped out get drilled. Commercialisation of these reserves is also expected to commence only after the initial FDP is well underway and will likely be used to first hike production rates (to 120mmacmd) and then maintain the plateau (beyond 7-8 years). Incremental reserves, therefore, will get valued at lower multiples as (a) commercialisation is back-ended and (b) the fiscal regime gets progressively harsher as Reliance recovers its investment capex."

 

First indications of size of KG-D6 crude find:

 

"Niko had earlier indicated that the consortium has struck oil in the Cretaceous section of the block. The document provides the first hint of the size of the crude find. At 1.6b barrels in place it is a significant discovery and ahead of market estimates, in our view. The KG-D6 crude discovery has not yet being declared commercial but Niko has (surprisingly) indicated in investor presentations that production could touch 60kbpd (2.9mtpa) as early as 2008. The KG-D6 crude find is in addition to the KG-III-6 crude discovery which Reliance has submitted to the government for approval (est. production start in FY11)."

 

Running out of upstream newsflow triggers:

 

"The 50tcf reserve estimate has been speculated upon in the media for the last ten weeks (after a newswire quoted a senior Reliance official) and a significant part of the upside is already priced into the stock, in our view. With these reserves likely to be confirmed only over the next couple of years  (Reliance has officially confirmed only 11.3tcf of 2P reserves so far), the search for incremental upstream newsflow drivers for the stock is getting more challenging. Our upgraded target price of Rs1265/share (+Rs28/share to build in the KG-D6 ramp up schedule indicated by Reliance and KG-D6 crude) now builds in all known and potential upstream discoveries except the D4 prospect where only 2D seismic is complete."