 "Why RIL ended at a 52-week low today")
Reliance Industries (RIL) today closed at a 52-week low of Rs 681 after the company ha cut estimates for proven gas reserves in its Krishna-Godavari (KG-D6) block off the east coast by 6.7%, to 3.67 trillion cubic ft (tcf).
Credit rating agency Moody’s has downgraded Reliance Industries Ltd (RIL) as credit negative based on the downward revision in the company’s assessment of natural gas reserve.
“The revisions are credit negative for the company as it confirms the technical difficulties that it faces in its exploration and production (E&P) business from declining production and consequently lower cash flows” said the rating agency today.
[caption id=“attachment_308847” align=“alignleft” width=“380” caption=“Macquarie Securities is neutral on the stock as it doesn’t see any major catalyst in the near-term for RIL”]
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Reliance Industries had last week revised downward its assessment of its proven natural gas reserves by 6.7 percent and its proven developed reserves by 36.2 percent.
“The revision has not yet prompted a write-down of the value of the exploration assets, which stood at approximately $5.4 billion as of March 2012, because Reliance Industries records the assets at cost less accumulated depletion, and the estimated fair market value of remaining proven reserves exceeds the current book value,” said Moody’s.
Mukesh Ambani had last week said that the production from the KG-D6 block had been adversely impacted, mainly due to unforeseen reservoir complexities and water ingress in the producing fields.
Rakesh Arora of Macquarie Securities is neutral on the stock as it doesn’t see any major catalyst in the near-term for RIL. “While we think that all these gas issues etc. have been well factored in, the company is in a low growth story at the moment. So when we are looking for a rebound in the market that is the key reason why we have replaced Reliance out of our top 10 ideas,” Arora told CNBC-TV 18.
RIL shares already slid 15 percent in March, the biggest slump since October 2008, after the government said it was considering restrictions on cost recovery as output was lower than what was envisaged by the company.
Even JP Morgan last week warned of a potential “political stand-off” between Reliance Industries and the government after the petroleum ministry ruled against the company’s petition to recover more than $1 billion of its KG basin investments. The fund house expect earnings growth for Reliance to be constrained, maintains its “underweight” rating on the stock with a price target of Rs 650 by March 2013.