Though the Mozambique discovery may be significant, clarity on the E&P potential may come only by March 2011.
In separate statements, BPCL and Videocon Industries, which are partners in the block, said the Lagosta exploration well encountered a total of more than 168 net metres natural gas pay in the Rovuma Basin, Area-1, offshore Mozambique. However, no estimate of potential reserves has been made yet.
This is the third discovery in the region, with the other two being Windjammer and Barquentine. Bharat PetroResources Ltd, the upstream subsidiary of BPCL, and Videocon Industries have a stake in the offshore exploration block.
The BPCL scrip rose almost 30 per cent between mid-May and the start of November on the back of reforms in the oil and gas sector. While deregulation of petrol prices brought oil marketing companies respite from the subsidy burden, the next leg of growth is expected after diesel decontrol, which most analysts reckon may not happen soon. Arriving at a long-term compensation formula to reduce underrecoveries may help.
Analysts at Anand Rathi, in a November 11 report, said the surge in the stock price between May and November had already factored in 70 per cent probability of diesel deregulation ahead of the ONGC-IOC divestment. They maintained this did not seem feasible in the curent high-inflation scenario. The stock has corrected around eight per cent since the report was released.
While the decision on diesel deregulation may take some time, exploration and production (E&P) activities can be an equally strong trigger for BPCL. Analysts say recent discoveries can be significant, but complete clarity on the E&P potential of Mozambique and Brazil blocks may come only by March 2011.
Earnings estimate for 2010-11, factoring in delays in commissioning of the Bina refinery, stands at Rs 1,851.3 crore, according to Anand Rathi. The stock ended nearly three per cent higher at Rs 696.2 on Wednesday and trades at 13.5 times 2010-11 and 11.8 times 2011-12 estimated earnings.