Reliance finds oil in Cambay basin; shares up

MUMBAI (Reuters) – Energy major Reliance Industries has made its first oil find in a Gujarat block, boosting hopes the firm's oil and gas exploration business will help offset some of the weakness in the refining sector.

Reliance, India's biggest conglomerate, with interests in petrochemicals, refining, oil and gas exploration and retail, said it made the discovery in its onland exploratory block in the Cambay basin in Gujarat.

Five wells had been drilled in the area, and the fifth well flowed at a rate of 500 barrels of oil per day (bopd), the company said on Tuesday.

"This discovery is expected to open future potential within the block," Reliance said in a statement.

The news boosted shares in Reliance, which has a market value of $71 billion, as much as 3.7 percent. By 0956 GMT, Reliance was trading up 1.7 percent at 2,058 rupees, in a weak Mumbai market that had slid 0.3 percent.

The discovery also helps allay some of the worries over uncertainty surrounding a gas-pricing dispute.

Reliance, controlled by billionaire Mukesh Ambani, is embroiled in a high-profile legal battle over a deal to sell gas to Reliance Natural Resources, led by Ambani's estranged younger brother Anil, at below the price set by the government.

Media reports of a recent meeting between the brothers to settle the dispute are baseless, and the matter will be decided by India's Supreme Court, which is hearing the case, Reliance Industries said in a statement.

"The result of this battle will be a key factor determining the oil industry's future," said R.K. Gupta, managing director of Taurus Mutual Fund. "The issue of the pricing of oil and gas needs to be cleared."

HIGH STRIKE RATE

Reliance holds a 100 percent participating interest in the Cambay basin block, which covers an area of 635 square kilometres.

"Overall, the company has had a very high strike rate," said Maulik Patel, an oil and gas analyst at K.R. Choksey Shares and Securities who has a "hold" rating on Reliance's stock. "Much more than some competitors."

In April Reliance started pumping gas from its block in the vast Krishna Godavari (KG) basin off India's east coast, where it made the country's largest gas find. This is expected to nearly double India's gas output when production peaks at 80 million standard cubic metres a day (mmscmd).

Gas production has helped partly offset weakness in the company's refining business, where margins have been slashed by a sluggish global economy and which led to a fourth straight fall in quarterly profit.

Analysts say Reliance, which owns the world's largest refining complex, might look to concentrate more on its oil and gas exploration and production businesses as it seeks to mitigate weak demand for its refining products.

Reliance also produces oil from its D6 block in the KG basin, and holds a stake in the Panna, Mukta and Tapti oil and gas fields off India's west coast.

Cairn India, unit of UK-based explorer Cairn Energy, in late August began pumping crude from its field in Rajasthan, the first major crude oil discovery in the energy-hungry nation in two decades.

News of Reliance's find could also brighten the outlook for investment in the oil and gas sector in India, as Asia's third-largest economy chases energy security and fuel expansion.

(Additional reporting by Nidhi Verma in New Delhi and Janaki Krishnan; Editing by Ranjit Gangadharan)