Reliance Industries (RIL) Chairman Mukesh Amani and CEO of BP Plc CEO Bob Dudley on Thursday announced an investment of $6 billion, or nearly Rs 400 billion, in new projects including developing new gas fields in the KG-D6 block after an eight- year hiatus. In a joint conference, they announced that they will award contracts to progress development of the ‘R-Series’ deep water gas fields in Block KGD6 off the east coast of India.
The R-series (D34) project is a dry gas development in water-depths of more than 2,000 metres, approximately 70 kilometres offshore. The R-series fields will be developed as a subsea tieback to the existing control and riser platform off Block KGD6. The project is expected to produce up to 12 million cubic metres (425 million cubic feet) of gas a day, coming on stream in 2020. Market experts believe the move is slightly negative for short term as the gestation period of these type of projects is quite long. However, long term out is still intact.
AK Prabhakar, Head of Research, IDBI Capital said, “These types of projects take time to deliver positive RoE. We may see negative opening of share on Friday. However, the stock can touch Rs 1,800 in the next 18 months.” Shares of the company on Thursday settled 2.11 per cent up at Rs 1,384.50. Ambareesh Baliga, independent market analyst, said, "Immediately RIL shares may not shoot up as the stock has performed in a declining market in the recent past. We may see some negative-to-flat trade for RIL on Friday. However, we believe shares of the company can touch Rs. 1,500 in the next 12-24 months."
This is the first of three planned projects in Block KGD6 that are expected to be developed in an integrated manner, producing from about 3 trillion cubic feet of discovered gas resources. RIL and BP plan to submit development plans for the next two projects for Government approval before the end of 2017. Development of the three projects, with total investment of Rs. 400 billion, is expected to bring a total 30-35 million cubic metres of gas a day new domestic gas production onstream, phased over 2020-2022.
CEO of BP Bob Dudley said, “We must choose projects carefully in light of weak oil prices.” Reliance holds a 60 per cent stake in a gas block in the Krishna Godavari (KG) basin, BP owns 30 per cent while Calgary-based Niko Resources Ltd holds the rest. BP is the tenth player to enter the lucrative fuel retailing business that is seeing double-digit growth, not seen anywhere in the world.
Earlier in the day, shares of oil market companies (OMCs) Bharat Petroleum Corporation, Indian Oil Corporation, Hindustan Petroleum Corporation slipped up to 5 per cent on expectation of rising competition. Prabhakar said, “Expectation of tight competition from private players hurt OMCs in Thursday’s trade.”