RIL to give up KG basin gas discovery block

Access restrictions and uncertainty over long-term natural gas pricing are the reasons

Reliance Industries will relinquish its Krishna Godavari basin gas discovery block, KG-D3, mainly because of operational restrictions placed by the defence ministry.

RIL, which had made four consecutive gas discoveries with close to 500 billion cubic feet of in-place reserves in block, proposed immediate relinquishment, its minority partner Hardy Oil and Gas plc of UK said on Wednesday.

Hardy said the block oversight panel headed by upstream regulator DGH yesterday considered RIL proposal. Without stating what the management committee (MC) decided, Hardy said the firm has agreed to the relinquishment proposed by the operator, RIL.

Hardy holds 10 per cent stake in the block which is operated by RIL with 60 per cent interest. BP of UK has the remaining 30 per cent stake.

“The proposal sets out that as per the Government of India notification dated November 10, 2014, access restrictions have been imposed and the operator recommended the relinquishment of the block with immediate effect,” it said.

RIL, it said, conveyed that the previously announced access restrictions imposed by the defence ministry rule out any further exploration/development activities in the impact zone area and inhibited the contractor from undertaking any further work and investment in the unrestricted area of the block due to anticipated increase in cost and risk.

“This untenable position was further compounded by the uncertainty of long-term natural gas pricing in India, following the government policy announced earlier in the year which imposed pricing at a significant discount to our expectation of regional market pricing,” Hardy said.

The government in October announced a 33 per cent hike in natural gas price to Rs 5.61 per million British thermal unit, much lower than Rs 8.4 rate that the industry was expecting. RIL-Hardy combine had in 2005 won the 3,288 sq km block KG-DWN-2003/1 (D3) in the fifth round of auction under New Exploration Licensing Policy. RIL sold 30 per cent out of its 90 per cent interest in the block to BP in 2011.

“In 2012, the Directorate General of Hydrocarbons (DGH) informed the operator of restrictions imposed... these restrictions affect 38 per cent of the block (1,242 sq km affected out of 3,288 sq km of block area) with a number of prospects lying in this affected area.

“The defence ministry restrictions introduced in October 2012, which were beyond the contractor’s control, the effect of which was to prevent the contractor from making any further progress, as these restrictions impact operations through the entire life-cycle of exploration, development and production,” Hardy said.