RIL plans $5-bn capex on KG-D6 block as gas output plummets

Reliance Industries (RIL) and its partners BP and Niko Resources are planning to invest $5 billion in the Krishna-Godavari (KG-D6) gas block off India's eastern coast, so as to reverse falling output.

''We are planning to invest in a series of projects to develop around four trillion cubic feet of discovered natural gas resources from the block,'' RIL chairman Mukesh Ambani said in the company's annual report for 2012-13.

RIL and its British partner BP Plc had, in April, submitted plans to bring to production satellite fields in the KG basin block to raise output that has plummeted to less than 16 million standard cubic meters per day, from about 64 mmscmd at its peak three years ago.

''The field development plan for the R-Series project (in the KG-D6 block) has been submitted to the Government of India for approval. This along with other projects is expected to add incremental production in the next four to five years,'' he said.

RIL has discovered 18 gas fields in KG-D6 block. Of these, only two (Dhirubhai-1 and 3) have been put to production. But gas production from the KG basin block has fallen to less than 16 million standard cubic meters per day from a peak of 64 mmscmd reached three years ago.

RIL said average production from KG-D6 block during 2012-13 was 26 mmscmd of gas and 9,225 barrels of oil per day. The company is now looking at developing satellite fields in and around the 18 fields so far explored.

''The next wave of projects in KG-D6 block are envisaged to be undertaken over the next three to five years and entail a potential total investment in excess of $5 billion to develop around four trillion cubic feet (TCF) of discovered natural gas resources,'' RIL said.

''The fall in production is mainly attributed to geological complexity, natural decline in the fields and higher than envisaged water ingress,'' the company said.

RIL currently holds 60 per cent stake in the gas block while partners BP and Niko Resources hold 30 per cent and 10 per cent, respectively.

While the RIL-consortium hold licence for oil and gas exploration in the block, a management committee comprising the government, the sector regulator and the company itself has to approve the expenditure and the development plans.

This has been done and the meeting of BP chief executive Bob Dudley and RIL chairman Mukesh Ambani with prime minister Manmohan Singh and top officials of the petroleum ministry last month had set the stage for further development of the block designed to boost gas production.

"The field development plan for the R-Series project (in the KG-D6 block) has been submitted to the government of India for approval. This along with other projects is expected to add incremental production in the next four to five years," Ambani said.

RIL has discovered 18 gas fields in KG-D6 block. Of these, only two (Dhirubhai-1 and 3) have been put to production. Satellite fields are now being planned to be developed.

"We believe gas from these projects will deliver energy to millions of Indians and would significantly help India in reducing import dependence," Ambani added.

RIL said average production from KG-D6 block during 2012-13 was 26 mmscmd of gas and 9,225 barrels of oil per day.

"The fall in production is mainly attributed to geological complexity, natural decline in the fields and higher than envisaged water ingress," the annual report said.

"The next wave of projects in KG-D6 block are envisaged to be undertaken over the next three to five years and entail a potential total investment in excess of $5 billion to develop around 4 trillion cubic feet (TCF) of discovered natural gas resources," RIL said.

RIL said at current international LNG prices, it would cost more than $50 billion to import this volume of gas into India.

BP and RIL, meanwhile, have sought a bigger increase in the price of gas than the doubling of gas price to $8-8.5 per mmBtu as recommended by the C Rangarajan Committee as, according to the companies, it would be inadequate for bringing high risk deep sea discoveries to production.

A panel headed by Rangarajan, chairman of the prime minister's economic advisory council had, earlier, suggested an interim "hybrid producer price" derived by averaging international hub prices with cost of imported liquid gas (LNG) for the next five years.