Guidelines for RIL bank guarantee by Feb 10, says Moily

Bank guarantee for the entire remaining recoverable gas reserves of about 0.75 Tcf in D1&D3 fields comes to $3 billion

Petroleum ministry will finalise in the next two weeks the guarantees that Reliance Industries will have to give for getting nearly double the price for natural gas from main fields in KG-D6 block.

The government  last month decided to allow Reliance Industries Limited (RIL) higher gas price, provided the firm gave bank guarantees to settle any claim against it over a shortfall in its gas output.

"Guidelines for submission of bank guarantee for D1/D3 fields will be finalised by February 10," Petroleum Minister M Veerappa Moily  said. The bank guarantee, to be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company had hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in  KG-D6 block since 2010-11. The guidelines will detail the format and circumstances under which the guarantee can be encahsed.

Sources said considering gas prices will rise from $4.2 per million British thermal unit to $8.2-8.4 after the Rangarajan pricing formula comes into effect from April 1, the bank guarantee — being the difference of current and new price — for every trillion cubic feet of gas production will come to $4 billion.

The bank guarantee for the entire remaining recoverable gas reserves of about 0.75 Tcf in D1&D3 fields comes to $3 billion.

At the current rate of production of about eight million standard cubic meters a day, D1&D3 will produce 0.3 Tcf in the next three years --- the time that may be needed to settle the issue of gas hoarding charges. The bank guarantee for 0.3 Tcf comes to $1.2 billion, they said. Of this, the share of RIL, which holds 60 per cent stake in KG-D6, will come to $60 million a quarter.

BP has 30 per cent interest and the remaining 10 per cent is with Niko.

D1&D3, the first of the 19 discoveries in eastern offshore KG-D6 block that was put on production in April 2009, originally was estimated to hold 10.03 Tcf of reserves. But these were last year slashed to 2.9 Tcf based on production data for the first three years when wells were shut one after another following water and sand sweeping inside along with sharp drop in reservoir pressure. Of the re-stated reserves of 2.9 Tcf, about 2.2 Tcf have already been produced in first four-and-half-years and balance of about 0.75 Tcf remains to be produced.

Sources said the new rate will apply to all other fields in KG-D6 without any preconditions. The currently producing MA oil and gas as well as fields like R-Series and satellite discoveries that will come into production in 2016-17 will also get the new rates without any preconditions.