OIL WOES RIL Reduces Estimates for Proven Gas Reserves by 6.7% Co’s report confirms declining fortunes of its oil and gas discovery in KG-DG

 Reliance Industries (RIL) has reduced estimates for proven gas reserves from its Indian blocks by 6.7% to 3.67 trillion cubic feet, the company said in its annual report for 2011-12, confirming the declining fortunes of its flagship oil and gas discovery in the Krishna Godavari Basin. 

India's largest private sector company has cut estimates for its KG-D6 block as the decline in production was higher than anticipated. "The proven reserves have also reduced due to the sale of participating interest to BP," the report added. RIL and BP formed a joint venture in 2011 for jointly developing oil and gas. 

"The market was expecting RIL to downgrade reserve estimates as they had indicated the same in their analyst presentation after their recent results. So, I don't think it will react too negatively on Wednesday and unduly punish the RIL stock. Although the overall impact on production will be seen as a negative and this is definitely not good news for RIL. Also, other companies operating in KG-D6 will see this fact as quite discouraging," said Deven Choksi, MD, KR Choksi Securities. 

The company said its joint venture with BP could reverse the decline though timely regulatory approvals were needed for this. 

"RIL and BP's collective technical capabilities, access to relevant resources and timely regulatory/government approvals can go a long way in arresting production decline and help in ramping up production." 

It predicted that refining margins would remain range-bound in the nearterm though there could be an uptick in the next few quarters. 

"While the economic outlook continues to remain uncertain, refining margins are expected to remain rangebound in near-term. The global refining cycle may swing for an up-cycle in the next few quarters driven by limited capacity additions, demand recovery based on economic forecasts and major mothballing of refineries in the US/Europe." RIL was more upbeat about the prospects of its three shale gas joint ventures in the US. Production rose 7-fold on a year-on-year basis in December 2011, it said in the annual report. Shale gas joint ventures focused on drilling a total of 231 wells, the report said. "We are contributing technical expertise and capital in the development of shale gas business which is likely to be a growing contributor for our earnings in the future," RIL's chairman and managing director Mukesh Ambani was quoted as saying in the annual report. 

Unkindest Cut 

• Co said its JV with BP could reverse decline though regulatory approvals were needed for this 

• Refining margins would remain range-bound in the near-term though there could be an uptick in the next few quarters 

• Production rose 7-fold on a yearon-year basis in December 2011