The Hindu Business Line : Oil and gas stocks gain on short covering

Mumbai, June 26 Short covering in the oil and gas stocks led the blue-chip oil and gas stocks to gain on the bourses on Thursday. The BSE-Oil & Gas index was the top gainer, as it was up 2.82 per cent since its previous close, with Reliance, which has a weightage of 56.54 per cent in the index, gaining 4.87 per cent. ONGC, with a weightage of 12.93 per cent, gained 0.73 per cent, GAIL (3.58 per cent), Cairn India (1.18 per cent) and Reliance Petroleum gained 1.85 per cent.

While the Reliance shares have fallen by more than 11 per cent since a month ago, today’s gain was on the back of the news that it will start its gas operations by September.

“Reliance’s exploration partner NICO Resources has forecasted higher-than-estimated natural gas reserves in a major field, which was another positive for the stock,” said Mr Sudeep Anand, research analyst, Religare.

Attractive valuations

“ONGC expects its first gas production from the Krishna-Godavari basin to commence in 2013,” said Mr Rohit Nagraj, Analyst, Angel Broking Ltd. With this, the valuations are even more attractive from investment point of view, said Mr Nagraj. “ONGC’s net realisation will increase this financial year compared with last year and this is a positive, given that the oil prices and other factors are constant,” Mr Anand said. While upstream companies such as Reliance, ONGC and Cairn are bound to do well in the future also, it is the oil marketing companies that might have to face bad weather in the coming times, said analysts.

While five stocks advanced in the BSE-Oil & Gas index, six declined. Analysts are also positive in the gas space as the gas pipeline infrastructure is being enhanced to meet the additional gas supply in future, with pipelines being set up and upgradation of existing networks. The increased gas availability is expected to benefit several players across the industry and within the gas chain, feel analysts.

Ambitious Plans

According to a report by Motilal Oswal, the availability of domestic gas would increase as Reliance Industries reaches its target peak production by late financial year till financial year (early) 2008-09, from the development of some fields in the KG basin. This would just be the beginning, with supplies from several other discovered blocks of RIL, ONGC and Gujarat State Petroleum Corporation likely to follow.

GAIL also has ambitious plans to nearly double its gas transmission networks over the next 4-5 years. This will increase its transmission capacity, the report mentions.

The oil and gas sector could outperform over the next 2-3 years, as the gas supply is going almost double and while some oil companies might face difficulties due to oil price rise, the gas pipeline companies are bound to benefit in any which way, as there will always be a need for pipelines,” said Mr Mehul Thanawala, Vice-President, JM Financial Institutional Securities.

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