RIL, partners to get $40 mn this fiscal from gas price hike

Reliance Industries and its partners will get about USD 40 million in additional revenue this fiscal for gas they produce from eastern offshore KG-D6 block after the government raised prices by 33 per cent.
Niko Resources, which holds 10 per cent stake in the RIL-operated KG-D6 block, said partners will get increased rate of USD 5.61 per million British thermal unit for the gas they produce from MA field in the block, while old rate of USD 4.2 would continue to apply on D1&D3 fields pending resolution of a dispute regarding reasons for drastic fall in output.
"Approximately 40 per cent of the natural gas sold from the D6 Block for the period of April to September of 2014 was produced from the MA field and approximately 60 per cent was produced from the D1&D3 fields.

"Based on the company's current projections of natural gas production from the MA field, the revised price will provide incremental revenue to Niko of approximately USD 4 million from the MA field for the period from November 1, 2014 to March 31, 2015," the company said in a statement.
Extrapolating the earnings for other partners, RIL will get USD 24 million for its 60 per cent share in the KG-D6 block and BP Plc of UK USD 12 million for its 30 per cent interest.
Niko said the cash flow benefit of the revised price on gas sales from the D1&D3 fields is not expected to be available unless and until the cost recovery dispute is resolved in the favour of the contractors of the block.

The government has not agreed with the partner's claim of geological reasons being responsible for D1&D4 output languishing at less than 8 million standard cubic meters per day instead of 80 mmscmd projected for this time of the year.

It has disallowed certain costs as penalty, which the partners have contested and the matter is in arbitration.
Consumers will, however, pay the revised increased price for D1&D3 gas, but RIL and its partners will get only USD 4.2 per mmBtu with the difference being deposited in an escrow account. They will get the higher rates if they win the arbitration case.

"As per the (natural gas pricing) Guidelines (that came into effect from November 1), the announcement of the gas price for the period of April 1, 2015 to September 30, 2015 is expected to occur in mid-March 2015," Niko said.
It said while the government has stated that a premium over the USD 5.61 rate would be given to discoveries made after the issuance of guidelines in difficult areas like deepsea, the applicability of the premium to existing undeveloped finds in the D6 and NEC-25 blocks remains to be clarified.
These discoveries included in the approved plans of development for the R-Cluster and Satellite Areas in KG-D6 block.

"The development of these discoveries is dependent on the future long-term price outlook for gas sales from these projects and the uncertainty in this outlook could mean that development of these discoveries could be deferred," it added.