Niko’s FY09 annual results disclosures reveal a 23% increase in the Phase-1 oil and gas development cost at KG-D6 to US$8.2bn. Gas production is currently at 28msmcmd and Niko expects this to reach peak of 80 by Dec-09; we model a Jul-10 peak. It also expects to receive approvals for the developments of the nine satellite fields in KG-D6 and for the six discoveries in NEC-25 in FY10 but is still targeting MN-D4 drilling only in mid-2010. Overall, the disclosures yield little incremental information on the three blocks that it co-owns with Reliance, though.
A 23% increase in Phase-1 oil and gas development costs in KG-D6. Niko’s FY09 annual results disclosures reveal a 21% increase in the Phase-1 project cost of the D1-D3 gas development to US$6.3bn (from US$5.2bn earlier). This indicates that overall project costs could be ~$1.5-2bn higher than the US$8.8bn (to be spent by FY12) indicated in Reliance’s 2006 development plan. In addition, the capex for the MA oil project has also increased to US$1.9bn (ex of FPSO which may cost US$0.7bn) from US$1.5bn earlier. The consortium has spent US$4.8bn on the gas project by end-FY09 and US$1.2bn in the oil project; we expect the rest to be spent in FY10.
Niko expects peak gas production by Dec-09. While Niko is silent on current MA crude production, data from India’s Ministry of Petroleum indicate that field produced 10kbpd in May. Niko expects MA to reach 38kbpd by end-FY10. Niko’s impairment test assumptions also indicate that pricing for MA oil could settle at a 10% discount to Brent. KG-D6 gas production is currently at 28mmscmd; Niko expects peak of 80 by Dec-09. We continue to model in 80 by Jul-10 as full production is contingent on completion of Gail’s pipeline expansion projects; these are likely only by 4QFY10. Overall, we model 43mmscmd in average for FY10 (Niko guidance of 50, estimates submitted to the government of 62-74); every 10mmscmd adds 5-7% to EPS.
MN-D4 drilling likely only in mid-2010. Reliance also drilled three successful wells in KG-D6 in FY09 with key discoveries in the Pleistocene (L1) and near the 2tcf R1 prospect besides one successful well in NEC-25. Reliance is currently drilling two more exploration wells in KG-D6 and one appraisal well in NEC-25 but exploratory drilling in the key MN-D4 block is unlikely before mid-2010 as it had guided for earlier. Niko also expects to receive approvals for the developments of the nine satellite fields in KG-D6 (US$5.9bn capex, 2.2tcf recoverable) and for the six discoveries in NEC-25 in FY10.
No reserve/resource disclosures. Overall, Niko’s disclosures yield little incremental information on the three blocks that it co-owns with Reliance. In particular, it did not provide disaggregated reserves/resources updates. Higher disclosure or intensive drilling is key for Reliance’s stock; especially as we expect refining/petchem margins to remain soft. We are downgrading FY10-12CL EPS by 2-4% to factor in the higher capex in FY10 (higher DDA, lower other income) and the deeper 10% discount for MAoil. We also reduce our fair value estimate by 1% to Rs1,925/sh but note that this does not factor in the potential Rs160-225/sh impact of the RNRL court case ruling.
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