Little gas left at two ONGC blocks; fuel flows to RIL

A report, by DeGoyler and MacNaughton, has put a question mark on the future production from the five ONGC discoveries

There is a shadow on future production from the five discoveries of the government-controlled Oil and Natural Gas Corporation, after gas reportedly flowed from two of its blocks to the adjacent Reliance Industries units off the Andhra Pradesh coast.

Dallas-based DeGoyler and MacNaughton (D&M), in a report submitted to the government on Tuesday, has put a question mark on the future production from the five ONGC discoveries. It has established continuity of the reservoir in three blocks of Reliance Industries and ONGC.

Mukesh Ambani-promoted Reliance Industries could be in a tight spot if the government holds it responsible for movement of natural gas to its production facility from the ONGC-controlled acreage. It is now looking for a solution within the production-sharing contract.

In its report, D&M said only 385 billion cubic feet natural gas could now be produced from ONGC's acreage, and this volume was possible only from Reliance Industries' facilities, since the pressure built-up - crucial to production - had fallen significantly, said a person who has seen the report.

This could create a hitch in the early resolution of the gas row between two of India's largest oil companies. Delhi High Court had asked the government to resolve the issue within six months of submission of the report.

ONGC had initially estimated 1.7 trillion cubic feet gas reserves in six discoveries in its two blocks that sit next to Reliance Industries' D6 block in the Krishna-Godavari basin off the Andhra Pradesh coast.

The D&M report has established that gas from five of these discoveries flowed into the Reliance Industries acreage. While 317 billion cubic feet has already been produced, 393 billion cubic feet have moved to the D1 and D3 reservoirs of Reliance Industries. Further movement could take the figure to 449 billion cubic feet over the life of block.

A person aware of the developments said the lowering of ONGC's reserve estimate was also because D&M had analysed only five discoveries.

For Reliance Industries' KG-D6 block, D&M has downgraded total recoverable gas reserves from 2.9 trillion cubic feet to 2.4 trillion cubic feet. The company had originally projected 10 trillion cubic feet natural gas in the block, but in a revised plan submitted in 2012, it brought down the reserves to 2.9 trillion cubic feet.

The ministry of petroleum and natural gas has not made D&M's report public nor has it issued an official statement. D K Sarraf, chairman and managing director, ONGC, and Reliance Industries spokesperson declined to comment on the findings of the report.

Delhi High Court had in September disposed of ONGC's petition in which the state-owned company had alleged 18 billion cubic metre of natural gas may have moved from its KG-D5 and Godavari PML blocks to Reliance Industries' KG-D6 block. The court had asked the parties to wait for the D&M's report and allowed ONGC to approach the court again if the government did not act within six months.

The lowering of reserves and pressure has cast doubts on the viability of ONGC's production because of low domestic gas prices. ONGC had earlier sought $6-7 per million British thermal units as the viable price for KG basin gas at 1.2 tcf. The current price is $3.8. With the prospective production estimate now lower, the company would need even higher price, said an industry expert who did not want to be named. The dispute may also impact the viability of Cluster 1 of ONGC's blocks in the region as G4 discovery falls within this cluster. RIL has so far produced 2.1 tcf including ONGC's 317 bcf. Against an investment commitment of $8.8 billion made in the Field Development Plan, RIL has so far invested $5.8 billion in its block.

A senior industry executive said D&M detailed report on reservoir continuity and the volume of gas migration is based on data sourced from the two companies and the government.