RIL's D-55 gas find may be game changer

Reliance Industries' significant gas and condensate discovery in the KG-D6 block may be a game-changer for the flagging eastern offshore block with analysts estimating that the find will help reverse the falling trend in gas output.

RIL on Friday evening announced a major gas find more than four kilometres below the sea bed and two-kilometres directly underneath the currently producing D1&D3 field in the Krishna Godavari basin KG-D6 block off the east coast.

Shares of RIL ended up 5.12% on the Bombay Stock Exchange to close at Rs 828.25, its biggest gain in 8 months.

Bernstein Research in a research note said that the partnership between RIL and BP is starting to pay off.

"The first test of deep syn-rift Mesozoic sediments within the KG-D6 block has yielded what could be one of the largest (2 Trillion cubic feet) gas discoveries offshore India for several years," it said.

Stating that the find opens up a new liquid-rich gas condensate play offshore India, it said independent estimates put the Cretaceous section of KG-D6 block may hold 9 Tcf of gas and 1.2 billion barrels of inplace oil reserves.

Satellite fields in the KG-D6 block along with finds in Block NEC-25 off the Odisha coast can help RIL boost gas output to over 50 million standard cubic meters per day by FY18, it said.

"Low gas prices remain the barrier to further exploration offshore India and over the past few years, there has been a hiatus in exploration drilling... It is important the increase in gas prices from $4 to $8 will make further exploration attractive and future development economically viable," it added.

HSBC said KG-D6 had reached a peak production of 60 mmscmd in early 2010 before declining to about 15 mmscmd now. "However, there are discovered pockets within the KG-D6 block (R Cluster, Satellite 1 and 2) that have yet to be developed," it said.

The new find, which was named D-55, can produce 8-10 mmscmd of gas along with about 10,000 barrels per day of condensate, HSBC said, adding that RIL was likely to take up to two years to bring the find into production.

Deutsche Bank said with an additional deep-water rig expected by August 2013, exploratory/development/work-over drilling activity in RIL's blocks will further accelerate.

"Government approval for a hike in natural gas price during FY14 would be a key catalyst as it will aid development of over 4 Tcf of recoverable resources in KG-D6 (R-Series and Satellite fields), which we estimate would otherwise be unviable at current gas price of $4.2 per million British thermal unit," it said.

Goldman Sachs said the announced discovery looks significant given that the largest D6 discovery had a gross hydrocarbon column of 194 meters (MA-2 well).

D-55 discovery had a hydrocarbon column of 155 meters.

"Moreover, if this discovery leads to a new commercial reservoir, it could meaningfully add to D6 reserves," it said.

UBS Investment Research said with this significant gas discovery, and the same being below the producing D1-D3 fields, utilisation of common infrastructure should facilitate a faster time to production.

Barclays said given that the find is located 2km below the producing D1-D3 fields and is near the MA oilfield in the same block, RIL should be able to use existing infrastructure like the underutilised FPSO that pumps out crude from the field.

"Still, much will depend on the pace of approvals; these routinely get delayed but with the government patting itself on the back after the MJ-1 (D-55) and Cairn-Rajasthan finds, we hope approvals are expedited," it added.

RIL, with its partners BP plc and Canada's Niko Resources on May 24 announced "significant" discovery of gas and related liquids (condensate) in a deposit that lies under the biggest producing areas, D1&D3 in the KG-D6 block in the Bay of Bengal.

BP holds 30% interest in KG-D6 while Niko has 10%. RIL is the operator of the block with 60% stake.

The follow-up exploration potential across India's east coast margin exists (9 Tcf in-place across KG-D6 alone).