How brokerages view Reliance Industries-BP oil find


Riken Mehta
Moneycontrol Bureau

Reliance Industries  (RIL) on Friday announced a huge natural gas discovery, possibly the biggest find ever, in the flagging eastern offshore KG-D6 block that will be crucial in arresting its falling gas output. The company has not disclosed estimates but media reports have suggested that reserves may be more than pre-drill best estimate of 1.2 trillion cubic feet equivalent.

Brokerage house Goldman Sachs has reiterated its ‘Buy’ rating on Reliance Industries with 12-month sum of the parts based target price of Rs 1,070 citing RIL’s capex in core segments that will lift its cash returns over the medium term.

“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. Overall, we believe, this discovery further strengthens our view that RIL’s E&P business is turning around,” said the Goldman Sachs note to clients.

Brokerage house Barclays has retained its ‘equalweight’rating on Reliance Industries with a target price of Rs 870 pending more clarity on MJ-1’s key parameters.

“We hypothesize that MJ-1 could be worth USD 2.5 billion (USD 8.1/boe) based on 1.5tcf and 60million barrels, USD 1.9 billion capex (USD 6/boe), a FY17 start-up and assuming that it is not ring-fenced. This translates to Rs 28 per share for Reliance’s 60% share. Niko (10% share) was up 23% on Friday adding USD 100m in market-cap or Rs 11 per share for Reliance’s 60 percent share,” said the Barclays note to clients.

CLSA too has retained its ‘outperform’ rating on the stock citing final decision on doubling of gas price as the next key trigger in FY14.

“Reliance’s first exploration well after a near two year exploration hiatus has been announced as a “significant” gas and condensate discovery. Based on our estimated value of USD 4/boe for development upside from a gas and liquid discovery, this could a value of USD 650 million for ever 1TCF i.e. Rs 8 per share for Reliance’s 60 percent stake. We note that Niko added USD 92mn to its market cap on the back of this discovery given its 10 percent stake. Pertinently, sharp movement in Niko’s stock implies a possible addition of Rs 12 per share for Reliance,” said the CLSA note.

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