Bharat Petroleum Corp. (BPCL) is the best- performing energy stock on the MSCI AC Asia Pacific Index this year and analysts say its foray into exploration in Africa to counter refining losses may mean there's more growth to come.

Bharat Petroleum's 54 percent surge this year makes it the only refiner among the top 10 gainers on the MSCI AC Asia Pacific Index and the best performer on India's 50-share Nifty Index. (NIFTY) India's second-biggest state refiner holds a 10 percent stake in a block off Mozambique, the site of the biggest natural gas discoveries in a decade.

The company, based in Mumbai, is emulating PetroChina Co. (857) and China Petroleum & Chemical (386) Corp. in acquiring overseas oil and gas assets to reduce the risk of refining and selling fuels at state-controlled prices. A discovery reported on May 15 in the Mozambique block operated by Anadarko Petroleum Corp. (APC) may increase gas reserves by 66 percent, enough to supply China and India for eight years, based on 2010 consumption.

"Bharat Petroleum is clearly diverging from its Indian state-run peers because of the strong progress in its exploration portfolio," Alok Deshpande, a Mumbai-based analyst with Elara Securities Ltd., said yesterday. "Investors can look forward to even more upside."

Bharat Petroleum fell 2.2 percent to 735.85 rupees in Mumbai yesterday. The company's advance this year compares with a 5.8 percent gain at Indian Oil Corp., the nation's biggest refiner, and a 21 percent rise at Hindustan Petroleum Corp.

Elara's Deshpande and Stuart Murray increased Bharat Petroleum's 12-month target price to 890 rupees a share from 800 rupees. They assigned 535 rupees a share, or 60 percent of the target, to exploration and production, according to a May 16 report.

Gas Potential

S. Varadarajan, director finance at Bharat Petroleum, didn't answer two calls to his mobile phone seeking comment and an e-mail query sent to spokesman M.M. Somaya wasn't immediately answered.

The Mozambique block may have as much as 50 trillion cubic feet of gas, according to a May 12 statement. The reserves may be enough to support construction of a gas liquefaction terminal to export the fuel to Asia's biggest economies.

Bharat Petroleum reported the new discovery in Rovuma Area 1 in the Indian Ocean. The Golfinho exploration well found 7 trillion to 20 trillion cubic feet of recoverable gas, according to the statement. That adds to the reserves in the Prosperidade find, which holds as much as 30 trillion cubic feet, the company said.

'Best Hedge'

Bharat Petroleum and local rivals Indian Oil (IOCL) and Hindustan Petroleum sell fuels below cost to help Prime Minister Manmohan Singh's government curb inflation. The companies lose a combined 5.1 billion rupees every day on the sales and lost 1.4 trillion rupees in revenue in the year ended March 31, according to oil ministry data.

The refiner posted losses in the first two quarters of the year that ended on March 31 after India's government failed to compensate the company for selling diesel and cooking fuels at less than market rates. The company is scheduled to report fourth-quarter earnings on May 25.

"The gas discoveries are the best hedge against below-cost fuel sales in India," Gagan Dixit, an analyst with Quant Broking Pvt. in Mumbai, said by telephone yesterday. "It's getting to a stage where a quarter of Bharat Petroleum's value is from the gas discoveries."

Dixit raised Bharat Petroleum's exploration valuation by 11 percent after the latest discovery. The Mozambique assets add to Bharat Petroleum's ventures in offshore Brazil with operator Petroleos Brasileiro SA and in Indonesia.

Analyst Consensus

Of the 45 analysts covering Bharat Petroleum, 25 recommend buying the stock, 15 suggest holding and five advise selling it, according to data compiled by Bloomberg.

The consensus of analyst recommendations for Bharat Petroleum is 3.84, higher than Indian Oil's 3.54 and Reliance Industries (RIL) Ltd.'s 3.75. PetroChina's 4.11 rating and Cnooc Ltd.'s 3.94 are better.

Reliance Industries, owner of the world's largest refining complex, has declined 1.1 percent this year as output from India's biggest gas deposit dropped. Production at the KG-D6 block is just half of its target, after output fell for a second year. Reliance, controlled by billionaire Mukesh Ambani, started commercial production in the area in April 2009.

"Exploration is always a risky business and you can never know how much gas can be brought out of the ground," said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. "It's just estimates and too early to say how much gas will be produced from Mozambique."

PetroChina Profit

PetroChina, China's biggest energy producer, posted an increase in first-quarter profit after it ramped up oil and gas production, while China Petroleum & Chemical, Asia's biggest refiner, posted a slump in earnings on losses from selling fuels at state-controlled prices.

Royal Dutch Shell Plc, Europe's largest oil company, agreed to buy U.K. explorer Cove Energy Plc, which has an 8.5 percent interest in Rovuma Area 1. Anadarko holds 36.5 percent of Rovuma Area 1, Japan's Mitsui & Co. 20 percent, India's Videocon Industries Ltd. (VCLF) and Bharat Petroleum unit Bharat PetroResources Ltd. 10 percent each, and Mozambique's state oil company 15 percent.