What to make of Reliance's two contradictory news in a week?

March 22, 2011   ·   0 Comments

Two Contradictory news in a week – One saying Production is all set up to rise 30 % & other saying that they Production www.stockssavvy.comis going down by 13 %. Is it a foreplay? Was it some insider trading which happened to take the Stock up? Or was it just a confusion & lack of Communication which happened earlier & they came to clarify the Clouds. We dig deep down under the story to found some astonishing facts.

 Officials said the field development plan (FDP) approved some years back, envisaged a total of 22 wells producing 61.88 mmscmd of gas from D1 and D3 fields by April 1, 2011. This was to rise to 80 mmscmd by April 1, 2012 with 31 wells. As per the FDP, production in the block is expected to go up to 86.92 mmscmd in 2013-14 and the output would start declining from 2018-19. The field is expected to produce for a total of 13 years, i.e. till 2022.

According to the ield development plan (FDP), Reliance was meant to put onstream 22 wells in the D1 and D3 fields by April, 2011, to achieve a production level of 61.88 mmscmd.

The energy regulator Directorate General of Hydrocarbons (DGH) said on Wednesday Reliance Industries’ gas output could go up to 67 million metric standard cubic metres a day (mmscmd) by April, earlier than expected, boosting shares in the company.

The news was seen as a positive boosting the share price Last Week.

The situation on the ground, however, is markedly different from what was promised. As of today, only 18 wells are in production. Output from these wells — at 43.44 mmscmd — is lower than the 53.4 mmscmd planned in the FDP. Another 8 mmscmd is being produced from the MA oilfield in KG-D6 block.

Reliance stated that natural gas output from Dhirubhai-1 and 3 or D1 and D3 gas fields in the block KG-DWN-98/3 or KG-D6, will be about 38 mmscmd in 2012-13 from current production level of 43-44 mmscmd. 13 % Reduction from the Current Output.

Some people argue that drilling more wells could solve the problem but Reliance has concluded that the cost of drilling, completing and connecting the well to the production system exceeds the economic value of the gas to be produced.

A solution to the problem may lie with BP, which is buying 30 per cent stake of Reliance in 23 oil and gas blocks including KG-D6, for $7.2 billion.

Now investors can only hope that RIL tie-up with British oil major BP, gets govt clearance soon, as BP with its expertise in managing big gas fields, can arrest the decline in production and ultimately bring cheer to everyone

Officials said that 18 wells have been drilled so far and completed and two more wells are complete, but not yet connected to the production system.

Investors must not forget that When you invest in a stock, you own a part of that Business. Challenges & Barriers are always a part and parcel of the cycle of a Business. Here comes the role play of dedicated management. They faced a challenge. They came up with a solution to tie up with BP for these wells to get the most out of those wells. That is why a Dedicated Management having an experience & expertise in their field becomes one principle in while picking a stock for the Investment. The stock is trading at very attractive levels to be in.

Traders though need to take these news with pinch of salt & remember the Thumb rule of not to over invest or Leverage at any point in time how confident one may be of making the money out of the trade.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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