RIL shares surge on gas find: What brokerages are saying

Reliance Industries (RIL) shares soared 4.25 percent after the company on Friday announced a huge natural gas discovery in the flagging eastern offshore KG-D6 block.

Investors are taking heart from the fact that the company may finally be able to arrest the sharp decline in gas out put from the block, which has been a worry.

More importantly, there are also expectations that the Cabinet Committee on Economic Affairs (CCEA) will approve the new gas pricing mechanism, which will also benefit the company.

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According to a report on Moneycontrol.com, Goldman Sachs has reiterated its “buy” rating, Barclays its “equalweight” and CLSA its “outperform” rating on the stock.

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Here is what various brokerages said about the discovery:

Goldman Sachs: The announced discovery looks significant given that the largest D6 discovery had a gross hydrocarbon column of 194 mts (MA-2 well). Moreover, if this discovery leads to a new commercial reservoir, it could meaningfully add to D6 reserves, in our view. Overall, we believe, this discovery further strengthens our view that RIL’s E&P business is turning around.

CLSA: Reliance’s first exploration well after a near two year exploration hiatus has been announced as a “significant” gas and condensate discovery. Based on our estimated value of USD 4/boe (barrel oil equivalent) for development upside from a gas and liquid discovery, this could a value of USD 650 million for ever 1TCF i.e. Rs 8 per share for Reliance’s 60 percent stake. We note that Niko added USD 92mn to its market cap on the back of this discovery given its 10 percent stake. Pertinently, sharp movement in Niko’s stock implies a possible addition of Rs 12 per share for Reliance.