Defence Ministry classifies RIL's KG-D6 block as "No-Go" area - Angel Broking

Media reports suggest that the Defence Ministry has classified Reliance Industries (RIL) and its partner BP Plc's KG-D6 gas fields and gas discovery area NEC-25 as "No-Go" areas. Media sources also suggest that Ministry of Defence has either withdrawn or withheld clearances for 47 oil and gas blocks (14 of which have been classified as "No-Go" areas). RIL-BP's KG-DWN-98/3 or KG-D6 block has been declared as "No-Go" as it overlaps with a proposed Naval base. KG-D6 was awarded to RIL during CY2000 by the Cabinet after clearances from all ministries concerned and it has been producing gas beginning April 1, 2009. Currently, the gas output from KG-D6 block is approximately 24mmscmd. RIL-BP's Mahanadi basin block NEC-OSN-97/2 (NEC-25) where sizable gas discoveries have been made, has also been classified as "No-Go" area as it is close to missile launching range/air force exercise area. Approximately 11% of our RIL's SOTP valuation comes from KG-D6 and NEC-25 blocks. Hence, this event is likely to have a negative impact on RIL's stock price in the near-term. However, we await further clarity on this matter. Until then, we maintain our Neutral rating on the stock.

Out of the 12 "No-Go" areas, there are some blocks allocated to ONGC and Cairn India. However, there is lack of clarity on the quantum of production from these blocks currently. Hence, we maintain our Reduce rating on ONGC with a target price of Rs.312 and Buy rating on Cairn India with a target price of Rs.383.

Source : Equity Bulls

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