BP Plc writes off USD 790 million investment in KG-D6 block

BP Plc has written down the value of its investment in eastern offshore KG-D6 block by USD 790 million besides another USD 830 million in impairment charges, following lower-than-expected gas price hike.
Announcing its fourth quarter and full 2014 results, BP said: "Third quarter, fourth quarter and full year 2014 include write-offs of USD 375 million, USD 20 million and USD 395 million respectively relating to block KG D6 in India."
"In addition, impairment charges of USD 395 million, USD 20 million and USD 415 million for the same periods were also recorded in relation to this block," it said.

The company did not explain the reasons for the write-off and impairment charges.
BP in 2011 bought 30 per cent interest in Reliance Industries' eastern offshore KG-D6 as well as 20 other oil and gas exploration blocks for USD 7.2 billion. Bulk of this was for the producing block of KG-D6 and gas discovery area of NEC-25.
In the third quarter result announcement on October 28, 2013, BP had said the write down arose "as a result of uncertainty in the future long-term gas price outlook, following the introduction of a new formula for Indian gas prices, although we do see the commencement of a transition to market-based pricing as a step in the right direction".

The government had on October 18 last year approved a new formula for pricing of all domestic gas. The rate, when the formula comes into effect from November 1, would be USD 5.61 per million British thermal unit as against current USD 4.2.

The price is lower than USD 8.4 approved by the previous UPA government and general expectation of a rate around USD 6.5 after some deductions from that price.
Both BP and RIL have been advocating market-linked gas pricing and had initiated an arbitration against the government for not revising rates from the due date of April 1, 2014.

The USD 4.2 per mmBtu rate, fixed in 2007, was for the first five years of production from KG-D6 fields. KG-d6 fields started gas output from April 1, 2009.
RIL is the operator of KG-D6 block with 60 per cent stake while the balance 10 per cent is with Canada's Niko Resources. Output at KG-D6 block has fallen over 80 per cent to below 13 million standard cubic meters per day as unanticipated water and sand ingress shut wells after wells.
Besides write-off at KG-D6, BP also wrote off USD 845 million in the value ascribed to block BM-CAL-13 offshore Brazil, following the acquisition of upstream assets from Devon Energy in 2011. This write off, it said, was "as a result of the Pitanga exploration well not encountering commercial quantities of oil or gas.