>Reliance Industries(Morgan Stanley)

Quick Comment – What’s New: The Ministry of
Petroleum and Natural Gas released a press note on the
Govt. of India’s decision regarding Pricing and
Commercial Utilization of Natural Gas produced from
NELP blocks. Key highlights of the release are as follows:
1. The First 40mmsmd of gas from the KG-D6 fields
will be supplied to the priority sector at a gas price of
US$4.2/mmbtu (excluding the transportation tariff and
taxes) and will be applicable to all consumers.
2. The pricing of gas is linked to the crude oil (WTI) price
and is capped at US$4.2/mmbtu for a crude oil price of
US$60/bbl or above. The govt. will await the ruling on a
court case for gas pricing and sale of gas to NTPC.
Implications of First 40mmscmd being sold at
US$4.2/mmbtu: Since the GoI has allowed RELI to sell
the first 40mmscmd of gas at US$4.2/mmbtu instead of
US$2.52/mmbtu ( to NTPC and RNRL) as per our
assumptions, the weighted avg. price of gas increases
to US$4.2/mmbtu (from US$2.52) and US$4.0/mmbtu
(from US$2.71) for F09 and F10, respectively.
Implications At Crude Oil Price of US$45/bbl: There
are two impacts if oil is at US$45/bbl: 1) At US$ 45/bbl of
crude oil based on the formula, the gas price, as per
GoIs formula would reduce from US$4.2/mmbtu to
US$4.067/mmbtu; 2) The assumption of MA1 field oil
goes from US$65/bbl to 45/bbl. The impact on RELI’s
EPS, purely due this change in gas pricing is +1%,
+12% and -1% for F09, F10 and F11E, respectively.
The overall impact including the crude oil pricing
would lower earnings by 1% in F09, increase
earnings by 6% by F10 and lower earnings by 6% in
F11E as shown in Exhibit 1. The dollar assumption here
is Rs51; if the dollar fluctuates by Rs1, our EPS changes
by 3.7%.

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