Reliance Falls to 6-Week Low on Report of Government Action

Reliance Industries Ltd. (RIL), India’s biggest company by market value, fell to the lowest in six weeks after a report said the government is taking action against the explorer for the decline in output from the country’s largest natural gas field.

The shares dropped 2.7 percent to 786.35 rupees at the close in Mumbai, the lowest level since Oct. 5.

Reliance is allowed to recover expenditure on exploration and production before sharing profits from the field with the government. The oil ministry has decided that the Mumbai-based company be allowed to recover $1.85 billion less than its investment of $5.7 billion, the Press Trust of India reported yesterday, citing people it didn’t identify.

Reliance hasn’t received any communication from the oil ministry on the matter, Tushar Pania, a Mumbai-based spokesman for the company, said today.

“In these type of circumstances, the market will react because investors think there is no smoke without fire,” said Alok Deshpande, an oil and gas analyst at Elara Securities India Pvt. Ltd. “Even if there is an inkling of something going down, the reaction is usually more than required.”

Output at KG-D6 has dropped to less than 35 million cubic meters a day compared with a target of 61.88 million cubic meters, Press Trust said. KG-D6 is India’s biggest gas deposit.

The decline in gas production to less than 45 million cubic meters a day is likely to have a modest impact on Reliance’s financial health, Moody’s Investors Service said Sept. 28. The block produced 60 million cubic meters in June 2010.

Reliance sold a 30 percent stake in 21 oil and gas fields to BP Plc (BP/) to help gain deepwater technology and expertise to boost output. The fields include KG-D6 in the Bay of Bengal, where lower pressure and thinner-than-expected reservoirs resulted in a drop in production.

To contact the reporter on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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