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HC diktat on price to force RIL into loss

BS Reporter  |  Mumbai 

Reliance Industries Ltd (RIL) has said it would incur a loss if it has to sell natural gas from its D6 block in the at $2.34 per million British thermal unit (mBtu). The company said that its total cost of production from the field was $2.9 per mBtu, including $0.89 as post-wellhead expenditure.

The Bombay High Court had directed on June 15 to supply 28 million metric standard cubic metres per day (mmscmd) of gas from the K-G basin for 17 years at $2.34 per mBtu.

According to the company, the estimated capital expenditure towards the development of the D1 and D3 field is $8.8 billion and, with the addition of a capital expenditure of $1 billion, the estimated expenditure towards exploration and appraisal works out to nearly $10 billion over the life of the field.

Giving a split-up of the total expenditure, said in a statement the exploration and development cost at the P2 reserve — where there is 50 per cent probability of recovery, with an estimated 10 trillion cubic feet (tcf) of gas — works out to be $1.1 per mBtu. To this can be added the operating cost of about 33 cents per mBtu and royalty, at the rate of 7.5 per cent of the approved cost of $4.2, amounting to 32 cents. The total pre-tax cost works out to $1.75 and, after the government share in the form of profit petroleum, it totals $2.9.

According to analysts, RIL’s earnings could suffer further if the court rules in favour of NTPC.

“In the RNRL case, the impact on will be very negative and if the court ruling is in favour of NTPC, would suffer massively. Also, existing gas pacts with fertilizer and power will suffer as a major chunk of gas would go to RNRL and NTPC,” said a Mumbai-based analyst.

The statement further argued that Oil and Natural Gas Corporation (ONGC), the largest gas producer in India today, is incurring a loss of $630 million selling nearly 55 mmscmd gas from less risky onland and shallow fields, at a price of $2.1 per mBtu (administered pricing mechanism, or APM, rate).

“If, for such blocks, ONGC is incurring loss on account of sale at an APM price of $2.1 per mBtu, would incur even greater loss if it has to sell gas at $2.34 from a deepwater NELP block,” said the statement.

First Published: Wed, June 24 2009. 00:24 IST