No improvement in decision-making, RIL tells investors

Partners BP and Niko may also not be agreeable to put in fresh investment if gas price is not revised

Reliance Industries Ltd (RIL) has told its investors that there has been "no significant improvement in ground-level decision making" which has impacted the business environment. The country’s largest private sector petroleum company has been peeved with the government for blocking of approvals and non-revision of gas price produced from its underperforming KG-D6 block.

In a post second quarter presentation to investors, the company has said that though there is “improving visibility for exploration and production business in India but implementation remains a concern”. A senior RIL executive told Business Standard that though the company is awaiting government approval for arresting the declining production from KG-D6 field, its partner BP and Niko may also not be agreeable to put in fresh investment if gas price is not revised.

The government had fixed $4.2 a million British thermal unit as the price for natural gas produced from KG-D6 for five years ending 2014. The field produced on an average 30 million standard cubic metre a day of gas in the first half of the financial year. The production from KG D6 declined to 29mmscmd in Q2FY13 compared to 45mmscmd in Q2FY12.

Gas output from KG-D6 which had peaked to 61.5 million standard cubic metre a day in March 2010 and was to further rise to 80 mscmd by April 2012 has been declining for more than a year and has now dipped to below 30 mscmd. It is expected to fall further to 20 mscmd by next year. Many believe that the production is being allowed to fall because RIL is stuck with a gas price of $4.2 a million British thermal unit till 2014.

The company has already initiated arbitration proceedings against the government on the issue of cost recovery. In a meeting with Union minister Jaipal Reddy on July 13 this year, that was attended by the entire top upstream bureaucracy, RIL executive director PMS Prasad and BP country head Sashi Mukundan were told that approvals for budgets and work programmes for 2010-11, 2011-12 and 2012-13 for KG-D6 will be given only if the company submits details to Comptroller and Auditor General for a performance audit which goes into appraisal and drilling programmes for the field. In its last report, CAG had raised objections to the operator not drilling the required number of wells.

Its price realization from KG-D6 at $4.2 is the lowest compared to $5.73 from Panna-Mukta and $5.57 from Tapti. According to analysis by Angel Broking, the company’s oil and gas segment’s revenue decreased by 36.7 per cent year on year Rs 2,254crore due to lower production from the KG-D6 block mainly due to reservoir complexity. Consequently, the segment’s EBIT declined by 43.4% to Rs 866 crore during the quarter ending September 2012.

Project Approval Status

KG-D6

D1, D3 & MA
Revised field development plan submitted as part of integrated strategy to MC*. Proposal cleared but approval awaited

R-Series & Satellite 1
Development plan to be submitted to MC. Engineering on track for development plan to be submitted in the second half of 2012-13

MJ1
Proposal submitted to govt in Sept 2012. Response awaited

NEC-25 (D32 and D40)
Plan for pre-development activities submitted to MC. Plan to commence conceptual engineering and submit development plan. Request for MC meeting pending at the Directorate General of Hydrocarbons.

Coal Bed Methane
Pricing formula submitted. Govt approval awaited.

CY-D6
Appraisal Programme for D53 discovery submitted to MC. Approval awaited from MC (DGH).

MC is the management committee, the oversight body that monitors approvals for the block. It has representation from DGH, oil ministry and the companies.

SOURCE: RIL