RIL, BP plan to revive $6-bn investment in KGD6, NEC 25

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With the government offering more than double the prevalent domestic gas price for difficult fields under what it calls a market-linked pricing regime, the Mukesh Ambani-controlled Reliance Industries and its UK-based partner BP could revive investments to produce more hydrocarbon from their KG-D6 and NEC-25 blocks. The investments could be to the tune of about $6 billion, down from $10 billion envisaged earlier, as oilfield services have become cheaper with the fall in commodity prices.

Besides, state-run ONGC has lined up plans to invest $5.076 billion to drill its deepwater block KG-DWN-98/2, which lies next to RIL’s KG-D6.

On April 5, PMS Prasad, executive director, and Ajay Khandelwal, president (E&P), at RIL met petroleum minister Dharmendra Pradhan in New Delhi to discuss the prevailing scenarios. The meeting, according to sources, lasted for more than 45 minutes and was also attended by KD Tripathi, petroleum secretary, and UP Singh, additional secretary (exploration). On the same day, Dev Sanyal, executive vice-president, and Sashi Mukundan, country head of BP India also met Pradhan separately at his office.

The latest reforms announced by the government in the oil and gas sector and how it would make the environment conducive for upstream activities were widely discussed at both the meetings, the sources added.

However, RIL would have to withdraw an arbitration it had slapped on the government for not revising gas prices from April 2014. According to a Cabinet decision, an explorer can enjoy the premium gas price only after it withdrew any pending arbitration. The Petroleum Planning and Analysis Cell (PPAC) has announced a ceiling price of $6.61 per million British thermal units for gas from deep- and ultra-deepwater, high pressure-high temperature areas for the period till October 30, which is 116% more than the current domestic gas price of $3.06 per mBtu for other fields.

“Our understanding is that they (RIL) would withdraw the arbitration. Their case anyway won’t stand potential legal scrutiny as it is the government’s prerogative to decide the policy and secondly, nobody could really gain from the arbitration. The government has put in place an attractive regime for deep-water exploration and companies are inclined to avail the benefits,” said a senior official privy to the discussions.

Multiple sources indicated to FE that both RIL and BP are back to the drawing board to redo the field development programmes. Their respective boards are likely to decide on a final investment programme shortly. They said that there are potential natural gas reserves to the tune of 2-3 trillion cubic feet (tcf) in the unexploited areas of KG-D6 and NEC-25.

“RIL is planning cluster development of R-series, satellite and other fields in KG-D6, which would reduce the cost and add to economic viability. They have also submitted revised DoCs (declarations of commerciality) for two discoveries after conducting DST (drill stem test),” said another official. However, the NEC-25 block in the Bengal basin would require more exploration, as current confirmed reserves are just 1 tcf. “Deepwater exploration would require more reserves to make it viable,” the official added.

RIL did not respond to a questionnaire on exploration programmes. A BP spokesperson said, “The recent reforms
announced by the government will provide the much-needed impetus to the Indian oil and gas industry. Together with our partners, we are working with the government to progress activities in our blocks.”

Output from fields in the KG-D6 block including D1, D3 and D26 are dipping fast and at this rate it would cease to produce by 2020 unless fresh investments are made in the unexplored areas. The current output at KG-D6 hovers around 9 million metric standard cubic metres per day (mmscmd), a far cry from the peak of nearly 60 mmscmd achieved in early 2010.