RIL stock rises 5% on gas field discovery

Reliance Industries Ltd's (RIL) share price soared on discovery of a gas field in the KG-D6 basin as the outlook for its exploration and production business improved. The Mukesh-Ambani-owned company's stock price rose 5.1 per cent to Rs 828.25 a share, largely contributing to the 1.6 per cent gain in the the Sensex. RIL, with a weightage of 8.6 per cent, is the second-most important stock in the Sensex and contributed nearly 25 per cent to the gains during on Monday's trading session.

RIL had issued a statement to the exchanges late on Friday evening, notifying the discovery of the gas and condensate column in the KG-D6 block.

"This discovery is expected to add to the hydrocarbon resources in the KG-D6 block. Appraisal will now commence to better define the scale and quality of the field," said the statement issued by the company to the exchanges.

The news of the discovery pepped up market participants as the fall in gas production from the basin had been a growing concern. "The confirmation of the long-anticipated MJ-1 gas condensate discovery in KG-D6 marks a break from years of adverse news flow for Reliance's domestic E&P assets," said a report on the company by Barclays, authored by Somshankar Sinha and Pooja Gupta.

However, analysts do not expect significant movement in the stock price in the near term. "In the short term, the stock will continue to be in the Rs 775-840 range. It will take time for the production to materialise into significant gains in the stock price," said Deven Choksey, MD, K R Choksey Securities. Research analysts expect production to rise 8-10 mscmd of gas over the next two years.

A report by UBS Investment Research said the stock was trading at the lower end of its historical trading band and that most negatives of falling gas production had been factored in.

"Overall, this discovery is a positive development and should help in improving production visibility from the KG-D6. We see a favourable risk-reward at current levels," said the report, authored by Ashish Jagnani.