RIL's D6 gas output to rise 30% in 2011-12, says DGH

Reliance Industries Ltd (RIL) is expected to increase gas output by 30 per cent from its D6 block in the Krishna-Godavari (K-G) basin in the coming financial year, to 67 million standard cubic metres per day (mscmd) from the current 50-51 mscmd.

A decline in D6 gas output had affected the third-quarter performance and research reports had cut down the company’s earning per share projections due to lower output from the block.

S K Srivastava, head of the government's Directorate General of Hydrocarbons, said 18 wells had been drilled so far and completed, of 22 development or production wells approved in Phase-I of the field development plan. Gas is being produced from 16 wells and two more wells are complete, but not on production. Another two wells are yet to be connected to the production system. “Reliance needs to drill two more wells by April,” he said. Gas production should rise to 67 mscmd in April, said Srivastava.

RIL recently decided to sell a 30 per cent stake in its 23 oil and gas blocks, including the prolific D6 block, to global petroleum major BP.

According to a Goldman Sachs report, the BP deal is expected to bring in $7.2 billion (pretax) of cash to RIL in 2011-12. "On top of the $4.4 bn in free cash flow, we are already forecasting, this would imply a net cash position against its December 2010 net debt of $8.6 bn. Assuming free cash flow of $20.2 bn between 2012-14 after meeting a committed capex of $12.4 bn over this period, we believe RIL will have surplus cash that it could reinvest or pay out via special and/or regular dividends," said the report.

The current output from the block is lower than the average 60 mscmd output in the April-June 2010 quarter. The decline was caused by some issues in reservoirs. The company is currently selling 14 mscmd of gas to fertiliser plants, 24 mscmd to power plants and the remaining 13 mscmd to other sectors like sponge iron plants, LPG, city gas distribution, petrochemical plants and refineries. Production from the block is expected to further increase to 80 mscmd.