Oil & gas majors in demand

Shares of three oil and gas majors rose by 3.13% and 4.62% at 15:16 IST on BSE on reports that the government has allowed Reliance Industries to charge higher prices for gas from April 2014.

Private sector oil and gas explorer Cairn India rose 3.13% to Rs 327.85.

State-run oil explorer ONGC rose 4.08% to Rs 284.75.

Mukesh Ambani-controlled Reliance Industries (RIL) jumped 4.62% to Rs 894.

The S&P BSE Sensex was up 379.44 points, or 1.83% at 21,088.06.

According to media reports, the Cabinet Committee on Economic Affairs (CCEA) on Thursday, 19 December 2013, approved a hike in the price of natural gas from Reliance Industries' (RIL) operated KG-D6 basin from April 2014.

Earlier the parliamentary committee on finance had questioned the government's decision to allow RIL realise higher gas price from the KG basin as the company had failed to meet the stipulated supply of gas. The matter has gone for arbitration and it was suggested that until the arbitration is resolved the company should not be allowed to realise higher gas price.

However, according to the proposal approved by the CCEA, RIL will have to submit a bank guarantee, as decided by the ministry of petroleum, to realise the newly notified gas prices in the country. The bank guarantee will be encashed if it is proved that RIL hoarded gas or deliberately suppressed production at the Dhirubhai-1 and 3 (D1&D3) main gas fields in its eastern offshore KG-D6 block.

The rate in April 2014, when the new pricing is to be implemented, will be about $8.4 per million British thermal unit (mBtu) as against the current $4.2 mBtu. The proposed bank guarantee will cover the difference between the current gas price and the new rate.

Media reports suggest that the D6 block is currently producing much lower than the supply commitment of about 80 million metric standard cubic metres per day (mmscmd). According to initial estimates, KG-D6 output was to reach 80 mmscmd by April 2012. Production from D-1, D-3 fields in the block started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started to drop. At present, the output from D-1, D-3 fields stands at 9.5 mmscmd. Total output from D6 block that includes MA fields is around 11-12 mmscmd, reports added.

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