Reliance Industries Ltd. (RIL), operator of the world’s largest oil refining complex, headed for its biggest gain in eight months after discovering a new natural gas deposit in its biggest block off India’s east coast.
The stock, the top gainer in the S&P BSE Sensex Index today, rose 3.9 percent to 816.40 rupees in Mumbai, bound for the sharpest rise since Sept. 14. The shares have declined 2.7 percent this year, compared with a 1.9 percent increase in the benchmark index.
Reliance, with partners BP Plc (BP/) and Canada’s Niko Resources Ltd. (NKO), announced on May 24 a “significant” discovery of gas and related liquids in a deposit that lies under the biggest producing areas in the KG-D6 block in the Bay of Bengal. The new reserves may help billionaire Mukesh Ambani-controlled Reliance reverse a three-year decline in production from the block and boost earnings that have dropped in four of the last six quarters.
“This discovery opens up a new liquid-rich gas condensate play offshore India,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a report today, while upgrading Reliance to ‘outperform’ from ‘market perform’. “With follow-up exploration potential across India’s east coast, this makes us more positive that Reliance may yet to be able to build a material gas business in India and find a productive use for its growing cash pile.”
Reliance had cash and equivalents of 829.8 billion rupees, deposited in bank deposits, mutual funds and government securities as of March 31, the company said in an April 16 statement. That surpassed its 724.3 billion rupees of debt outstanding.
The company and its partners plan to spend more than $5 billion in the next three to five years to develop gas discoveries in the KG-D6 block off India’s east coast, Reliance said April 16. Gas production from KG-D6 declined 39 percent to 336 billion cubic feet in the 12 months ended March 31 from a year earlier. The drop was spurred by reservoir complexity and a natural decline in output, it said.
BP, Europe’s second-biggest oil company, bought stakes in KG-D6 and 20 other blocks for $7.2 billion in August 2010 as Ambani sought the London-based company’s technology to drill and produce gas from deepwater areas. Niko owns a 10 percent stake in the KG-D6 block.
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