Saturday, December 3, 2011

Oil Min rejects RIL\'s $ 1.52 bn investment in KG-D6

New Delhi:-03-12-2011

Oil Ministry and its technical arm DGH on Friday refused approval to Reliance Industries\' $ 1.529 billion investment plan to develop satellite fields to offset fall in gas output at its flagging KG-D6 block.

At the KG-D6 block\'s oversight committee meeting on Friday, the ministry and the DGH blocked the investment saying RIL and its partners, BP Plc of the UK and Niko Resources of Canada, need to rework financials as the original proposal was submitted in 2009, sources privy to the deliberations said.

The investment plan has been pending for approval with the DGH and the Oil Ministry for almost two years and when it came up for approval at the Management Committee (MC) meeting on Friday the ministry and the DGH said investment plan needs to be reworked keeping changed prices of energy and services.

RIL had in 2009 submitted a field development plan (FPD) for four satellite fields in KG-D6 block.

RIL request for approval of $ 30 million spending to do engineering studies so that a new field development plan can be submitted was also rejected by the MC, they said.

BP, which had earlier this year bought 30 per cent stake in KG-D6 and 22 other blocks of RIL for $ 7.2 billion in India\'s largest ever foreign direct investment, has been banking on \'Next Wave\' strategy of developing satellite fields to reverse the fall in output at KG-D6 field which has dipped to 41 million standard cubic meters per day from 61.5 mmscmd achieved in March last year.

Directorate General of Hydrocarbon (DGH) Director General SK Srivastava, who had on Thursday confirmed his availability for the MC meeting, on Friday did not Zttend the meeting and instead sent his junior. D N Narasimha Raju, Joint Secretary (Exploration), Ministry Of Petroleum and Natural Gas, too skipped the meeting and sent his juniors for the meet.

Without engineering studies, an accurate financial estimate is not possible, sources said.

RIL had in 2009 submitted a field development plan (FPD) for four satellite fields surrounding the currently producing Dhirubhai-1 and 3 (D1 and D3) fields in KG-D6 block. It proposed to invest $ 1.529 billion for producing up to 10

mmscmd of gas from the Dhirubhai-2, 6, 19 and 22 (D-2, D-6, D-19 and D-22) fields in the KG-D6 block by 2016.

The company has so far made 18 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 the largest among the lot were brought into production from April, 2009.

It had in July, 2008, submitted a FDP for nine satellite gas discoveries (D-2, D-4, D-6, D-7, D-8, D-16, D-19, D-22 and D-23) with an estimated capex of $ 5.6 billion and reserves of 1,708 billion cubic feet (bcf).

RIL later submitted an optimised development plan for the four satellite gas fields in end-2009. It estimated 1,733 bcf of in-place gas reserves in the four finds, of which 626 bcf can be produced. However, the DGH trimmed down the estimates to 1,342 bcf and 617 bcf, respectively.

Fall in pressure, water ingress and thinner-than-expected reservoirs resulted in a drop in production at D1&D3 to 34.11 mmcmd from 54 mmscmd achieved in March last year. Together with around 7 mmscmd, the output from KG-D6 currently is 41.06 mmscmd.

BP\'s India CFO Kris Sliger has earlier written to the Oil Ministry saying that Europe\'s second-largest oil firm is preparing to explore newer areas of D6 as part of a \'Next Wave\' strategy.

Production from KG-D6 had touched 61.5 mmsmcd in March last year and was projected to rise to 69.2 mmscmd by this time, but has instead slumped.

BP had asked the Oil Ministry for approval to begin pre- development activities at both the R-Series and satellite fields that surround the currently producing Dhirubhai-1 and 3 fields.

RIL\'s proposal for investment of $ 2.34 billion in developing R-Series fields in KG-D6 block is also pending approval.

Tests by RIL have shown that gas-bearing layers of sand in the Dhirubhai-1 and 3 fields of KG-D6 block are thinner than initially estimated and extraction may require costlier drilling techniques. Satellite fields in the KG-D6 block and

discoveries, also known as the \'R-Series\', together are estimated to have the potential to produce 35 mmscmd.

BP wanted the government to quickly approve plans for additional satellite and R series reservoirs so as to begin the process of engineering and hike production of gas from KG-D6 by 2014.

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