Company Update: Reliance Industries Limited

Company Update: Reliance Industries Limited

Reliance Industries (RIL) is set to account for about 40% of the country’s energy production in the next 18 to 24 months, putting the company on track to earn a quarter of its profit from oil and gas production, from 5% now.

The total hydrocarbon output from the Dhirubhai 6 (D6) block in the Krishna-Godavari basin, the field that is expected to more than double India’s gas output, will rise to 550,000 barrels of oil equivalent a day (boed) by March 2010.

The initial production from the block was 5,000 boed. RIL is investing $5.2 billion to develop the KG basin. This oil production will not only benefit customers but also reduce subsidies and thus release huge financial resources that the government can spend on development.

The company will start pumping natural gas from the KG basin in the January-March quarter, which is within the broad target of the company but later than the government’s forecast that production would begin by November.

The company explained that the delay in gas production is due to tough weather conditions and a tight supply chain adding that it will produce 90 cubic metres of saleable gas a day starting in January.

The same quantity of gas is being produced today and that’s being re-injected into the system. The company also said that gas pipeline connecting the east and west coasts is almost complete.

However, it will have to wait for a court decision before starting gas sales as the Bombay High Court is hearing a case on the sale of gas to NTPC and Anil Ambani-owned Reliance Natural Resources. We maintain a BUY on the stock with a target price of Rs3,344.