Mumbai: Shares in Reliance Industries Ltd fell as much as 3.2% on Thursday on renewed concerns about gas output after Canada’s Niko Resources Ltd slashed the reserve estimate at the KG D6 block, in which both hold stakes.
Reliance has been under pressure from the government and regulators to raise output at the huge KG gas fields, off India’s east coast, where production has declined for more than a year, forcing rising Indian imports of expensive liquefied natural gas (LNG).
Niko shares fell 39% to an almost 12-year low of C$13.06 on Thursday morning on the Toronto Stock Exchange.
The Canadian oil and gas producer late on Wednesday estimated that total proved plus probable reserves at the KG D6 block, as of 31 March, had decreased to 1.93 trillion cubic feet.
The block had earlier been estimated to hold more than 9 trillion cubic feet (tcf) of gas.
Niko holds a 10% stake in the D6 block. Reliance holds 60%, while BP Plc has a 30% stake.
Haywood Securities’s analyst Alan Knowles said the magnitude of the decline in the proved and probable reserves is far in excess of his expectations.
He cut his price target on the stock to C$40 from C$60.
Raymond James also cut its price target on the stock to C$30 from C$52.
A Reliance Industries spokesman was not immediately available for comment.
Last month, Reliance cut proven gas reserves at all its Indian blocks by a lower-than-expected 7%, but Wednesday’s sharp cut by Niko has revived worries over the growth outlook that last year resulted in its share price dropping by a third.
“The market was expecting Niko to cut reserves to around 5-5.5 tcf, so this number is well below that,” said a sector analyst at a Mumbai brokerage.
He said the estimate, if confirmed by the company, could result in Reliance’s valuation coming down by Rs80 to 90. Other analysts said both companies may be using differing data to estimate reserves.
Reliance shares closed down 2.5% at Rs718.70 in Mumbai trade. The stock lost a third of its value in 2011.
Reliance earlier blamed a decline in pressure and water ingress for falling production at D6 and said it was working with partner BP to raise production. Both companies will submit a development plan for the block to the regulator by the year-end.
Gas output at Reliance’s D6 block, off India’s east coast, is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014-15 from 28 mscmd in the current fiscal year.
Profits at the energy-based conglomerate have fallen for two straight quarters, and its shares now trade near a 3-year low.
