Shares in Reliance Industries gained as much as 2.5 per cent after the Cabinet on Thursday allowed the company to charge higher prices for gas from April. RIL was the top gainer on the 50-share Nifty benchmark.
RIL shares traded 2.45 per cent higher at Rs. 874.95 as of 09.16 a.m. outperforming the broader Nifty, which gained 0.3 per cent in early trade. (Track stock)
In June, the government had approved a move to higher, market-related rates for locally-produced gas from April 2014, but the finance ministry later said prices for Reliance should be capped because the company's gas production from the offshore D6 block was far below its supply commitment.
Now, RIL has offered financial guarantees to the government to settle any claims against it over a shortfall in its gas output.
"Bank guarantee will be equivalent to the incremental revenue that Reliance will get from the new gas pricing," Oil Secretary Vivek Rae told reporters after a cabinet meeting.
Goldman Sachs said the Cabinet decision has cleared the uncertainty on gas prices and the clarity on D6 gas pricing is a positive.
Global brokerage Macquarie said RIL will be the biggest beneficiary followed by ONGC & Oil India. The development is positive for India's exploration and production sector, it added.
Other energy stocks also rose. State-run Oil India traded 1.8 per cent higher, while ONGC gained 1.4 per cent.
Background:
Reliance, which operates the D6 block off India's eastern coast, has reported a sharp decline in gas output since 2010.
Reliance and partner BP have blamed geological complexities for the fall in output, but the oil regulator believes they failed to drill enough wells.
Output from the fields D1 and D3 at the block has plunged to about 10 million cubic meters a day (mmcmd), a company official has said, compared to the planned 80 mmcmd.
Falling output had already prompted the government to disallow proportionate cost recovery to Reliance, leading to arbitration proceedings over the issue.
Gas from D6 was earmarked for strategic domestic industries including fertiliser production, cooking gas and power, but has fallen so much that only some fertiliser plants now get supplies from the offshore block.
What brokers say?
Ambareesh Baliga of Edelweiss Global Wealth told NDTV that the production issues were related to gas pricing and not because of technical difficulties and production from the D6 fields should now rise.
Mr Baliga is bullish on RIL and has a target of Rs. 1125 on the stock.
RIL shares traded 2.45 per cent higher at Rs. 874.95 as of 09.16 a.m. outperforming the broader Nifty, which gained 0.3 per cent in early trade. (Track stock)
In June, the government had approved a move to higher, market-related rates for locally-produced gas from April 2014, but the finance ministry later said prices for Reliance should be capped because the company's gas production from the offshore D6 block was far below its supply commitment.
Now, RIL has offered financial guarantees to the government to settle any claims against it over a shortfall in its gas output.
"Bank guarantee will be equivalent to the incremental revenue that Reliance will get from the new gas pricing," Oil Secretary Vivek Rae told reporters after a cabinet meeting.
Goldman Sachs said the Cabinet decision has cleared the uncertainty on gas prices and the clarity on D6 gas pricing is a positive.
Global brokerage Macquarie said RIL will be the biggest beneficiary followed by ONGC & Oil India. The development is positive for India's exploration and production sector, it added.
Other energy stocks also rose. State-run Oil India traded 1.8 per cent higher, while ONGC gained 1.4 per cent.
Background:
Reliance, which operates the D6 block off India's eastern coast, has reported a sharp decline in gas output since 2010.
Reliance and partner BP have blamed geological complexities for the fall in output, but the oil regulator believes they failed to drill enough wells.
Output from the fields D1 and D3 at the block has plunged to about 10 million cubic meters a day (mmcmd), a company official has said, compared to the planned 80 mmcmd.
Falling output had already prompted the government to disallow proportionate cost recovery to Reliance, leading to arbitration proceedings over the issue.
Gas from D6 was earmarked for strategic domestic industries including fertiliser production, cooking gas and power, but has fallen so much that only some fertiliser plants now get supplies from the offshore block.
What brokers say?
Ambareesh Baliga of Edelweiss Global Wealth told NDTV that the production issues were related to gas pricing and not because of technical difficulties and production from the D6 fields should now rise.
Mr Baliga is bullish on RIL and has a target of Rs. 1125 on the stock.
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