RIL's KG-D6 saga enters final phase, time to place your bets

Stock rises 2.65% on reports of possible increase in gas production

Two news reports on Reliance Industries(RIL) are significant for the shareholders. One of the reports say that the Parliament Standing Committee on petroleum and natural gas has observed that non-adherence by RIL to the approved field development plan of KG D-6 block be construed as "default".

 

Another report says that Reliance would increase its gas production by repairing a third of its wells currently shut at its main gas field in KG-D6 block and increase its production in the first quarter of 2014. This strangely coincides with the expected price hike by the government.

 

Market seems to have responded to the production hike news taking the stock 2.65% higher in the process. The PSC report appears to have been discounted as nothing much is expected from such reports. Market trusts Reliance Industries to find a way around such reports as these reports continue to say what is now termed as old news.

 

Niko Resources, a 10% partner in the well in its quarterly filling said that Reliance is mobilising a drilling rig for the D1 & D3 fields to commence a three well work-over programme that is expected to increase the volumes.

 

No details of the expected increase in volume has been provided by Niko Resources or Reliance.

 

While one might be tempted to think that there is a co-relation between drilling the work-over well and the price rise proposed by the government, the fact remains that the government had not allowed work-over by not approving the budgets for two years.

 

There are also reports that the government is contemplating imposing a $800 million fine on Reliance for failing to produce the expected amount of gas for another year. The ministry's technical arm, the Directorate General of Hydrocarbons (DGH) had proposed the penalty on the ground that gas output fell because the company did not drill the promised number of wells. Reliance on the other hand says that the production fell sharply because of geological complexities and drilling more wells would not boost output.

 

To add to the complexity, CPI leader Gurudas Dasgupta has approached the apex court against government's decision to double gas price from April 2014.

 

Rise in Reliance's stock price volatility is a reflection of building up of these events near April 2014. Adding to the climax is the general election which is expected to be around that time. As the date nears, one can expect volatility to increase further. Bets are stacked in favour of a price and production rise, but with the Supreme Court entering the fray, Reliance's ability to push its agenda will be restricted.

 

Time to place your bets, because either side the move will be big.