Gas row hits development of K-G satellite discoveries

RIL to revise development plan for these fields.

With Reliance Industries Ltd (RIL) apparently stuck with the government-approved gas price of $4.2 per million British thermal unit (mBtu), the development of its satellite discoveries in the Krishna-Godavari (K-G) basin has taken a backseat.

The company started reworking the development plan for these discoveries after it was found that the cost of gas after development could exceed $4.2 an mBtu. The company had in July 2008 submitted the field development plan (FDP) for the nine discoveries that surround its existing producing field in the K-G basin. These discoveries are in the KG-DWN 98/3 block from where RIL is also producing crude oil.

“The development of these fields required a gas price higher than $4.2. We did not want to fight and decided to go back to the drawing board and find something that can be afforded,” RIL Director and head (petroleum business) PMS Prasad told Business Standard. He said the Directorate General of Hydrocarbons also advised them to rework the FDP.

Prasad said gas from these discoveries would be commercially viable at a higher price that could be $5-5.5 an mBtu. RIL is in the process of revising the FDP for these fields.

“When you go into deeper waters, where reserves are in smaller pockets, you take a decision — either you pay a price or leave them there for future,” he added. “By pricing natural resources artificially low, you cannot value them properly.”

The satellite discoveries are smaller discoveries that surround D1 and D2 fields in the K-G block. These discoveries are not commercially viable on their own, but can be brought into production when developed along with the infrastructure put up for the other fields.

RIL had proposed in its earlier FDP an investment of about Rs 29,800 crore (about $5.91 billion) in developing these nine discoveries but DGH earlier this year had sent back the plan and asked the company to revise it. These discoveries were to be tied up with the D1 and D3 finds which went into production in April this year.

The discoveries — called Dhirubhai 2, 4, 6, 7, 8, 16, 19, 22 and 23 — are expected to increase the reserves of the block from 10.03 trillion cubic feet (tcf) to about 40 tcf.

Admitting that the development of satellite fields has now been delayed, another senior RIL executive said the development will not viable in the prevailing economic environment. The revised plan would have to rework the costs so that it fits into the current price.

When the earlier FDP was submitted, crude oil prices were higher than $100 a barrel. The norms require that FDP be submitted to the directorate general of hydrocarbons within 200 days of declaring commerciality.

“Though this requirement was met, it is now a question of reworking it,” said the executive.