Decline in KG-D6 output weighs, retain ‘reduce’ on RIL
Gas production from RIL’s KG-D6 block declined below 23 mcm/d in the recent weeks following shutdown of the seventh producing well in D1 and D3 fields due to high water ingress and sanding issues. We note that KG-D6 gas production has declined by ~4 mcm/d on a quarterly basis over the past four quarters.
A sustained decline in KG-D6 gas production poses meaningful downside risks to RIL’s production guidance of 22.6 mcm/d for FY14 and 20 mcm/d for FY15.
We are surprised by the Street’s excitement on potential reversal in production decline from the recent start of drilling work in KG D-6 satellite fields. We do expect satellite fields and R-series discovery to augment KG D-6 production, but not before FY16, given a virtually new development project and limited weather window for operations. The FDP-approved production profile indicates sharp decline in production from satellite fields (D2, D6, D19 and D22) from 10 mcm/d in the first year to nil in eight years.
The sustained decline in RIL’s gas production will affect India’s domestic gas supply, leading to reduced supplies to power and other non-fertiliser sectors. This could further strain
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