 "Allegations of gas hoarding at KG-D6 unfounded, ill-informed: Sashi Mukundan")
Even after regulatory hurdles and allegations of hoarding gas in KG-D6 hogging the headlines, BP India is betting on the prospects of the country’s hydrocarbon sector. Sashi Mukundan, region president & country head of BP Group Companies, tells Shine Jacob about the company’s concerns. Edited excerpts:
A lot of political storm is going on with the Left parties up in arms stating that there is a deliberate hoarding of gas from KG-D6. How do you see this scenario?
It is sad that in a country that desperately needs access to energy to grow, attempts are being made to stifle the domestic sector, scare investors from bringing technology and risk capital here and increase our dependence on imports.
I am aware of allegations that natural gas production from this field has been artificially depressed by the Contractors and reserves are being ‘hoarded’ in order to extract more value post the price revision in April 2014.
This allegation of hoarding is unfounded and ill-informed. The field is being managed in line with global standards of optimizing hydrocarbon recovery. Gas is being produced at the maximum rate which will keep the field going until additional projects are put into place.
In fact, since 2010 approvals for annual budgets were held back delaying essential activities required to arrest the production decline and to reduce the risk of D1, D3 field being shut-in. If these budgets were approved on time, then the current production could have been 50-75% higher than today. Approvals were finally granted in April 2013 and these activities are now on war-footing and targeted for completion in 2015.
Additionally, international prudent development practices do not support drilling additional wells for the remaining reserves as accumulations that are small. Drilling and connecting the remaining 11 wells to comply with the last approved Development Plan would result in an inefficient spend of over $2 billion with no economic benefit. The plan is to produce the remaining reserves efficiently by spending around $500 million in repairs and compression.
BP and RIL had announced investments of over $5 billion over the next three-five years in the KG-D6 block to develop around four trillion cubic feet of discovered natural gas reserves. Are these investment plans getting affected by regulatory and policy hurdles?
Quick approvals to progress activities and achieving clarity on gas pricing for the long term will be key for us to be able to make investment decisions. The $5 billion investment over the next 3-5 years is to develop the R-series and the Satellite discoveries and connect them to the existing infrastructure and bring them to market starting 2017.
The R-series development plan got approved at a very fast pace at the end of August. The CCEA decision on pricing is a step in the right direction and we are hopeful that the Kelkar Committee will be able to come up with the roadmap to transition from the Rangarajan Committee recommended formula to an arms-length market determined price, this is what the production sharing contract and the 12th Five Year Plan provide for.
In the current scenario with policy hurdles affecting your current investment plans, would you be keen to participate in the upcoming NELP rounds or bidding for shale gas blocks?
BP invested in India for the long term. In addition to developing the discovered resources through our next wave of projects, we continue to explore in the existing blocks in the KG, Cauvery and Mahanadi basins. Our participation in future NELP rounds will be a factor of the blocks and basins on offer and the fiscal and contract terms that govern such auction.
The government is moving a Cabinet note to charge old gas price of $ 4.2 per million British thermal unit for gas produced from Dhirubhai-1 D1 and D3 fields, until previous commitments are met. How are you looking at the situation?
We are not aware of such a Cabinet Note. I feel however that it is important to clarify the issue of decline from the D1/D3 field. The D1/D3 field in KG-D6 block is the first and only deep-water ‘dry gas’ field in India and one of the very few ‘dry gas’ deep-water developments in the world with very few analogues.
Gas was discovered in this field in 2002 and the discovery was brought into production in a record time of 6.5 years in April 2009 on schedule and below budget. By September 2013 the field has produced over 1.9 trillion cubic feet of gas saving close to $16 billion of actual energy imports.
As production commenced it became evident that the field was more complex than originally envisioned and we believe that only 2.9 tcf of gas could be ultimately recovered from D1/D3. This is not the first field ever to face such a drastic revision. There are examples across the globe and in India where reserve estimates have had to be revised downwards based on production and drilling data.
All over the world and as per the PSC, the Development Plan is only a plan for developing the possible resources. It is very difficult to predict how the individual wells or the reservoir will ultimately perform over a period of time and as a result to predict the volumes that will ultimately be recovered.
Hence,the PSC requires that the contractor submits annual work programmes and budgets based on an increased understanding from the field performance and an annually revised estimate of the volumes that can be produced from the field in that year. To construe the production estimates in the Development Plan as a ‘commitment’ is flawed and not in line with the PSC.
A lot of political storm is going on with the Left parties up in arms stating that there is a deliberate hoarding of gas from KG-D6. How do you see this scenario?
It is sad that in a country that desperately needs access to energy to grow, attempts are being made to stifle the domestic sector, scare investors from bringing technology and risk capital here and increase our dependence on imports.
I am aware of allegations that natural gas production from this field has been artificially depressed by the Contractors and reserves are being ‘hoarded’ in order to extract more value post the price revision in April 2014.
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This allegation of hoarding is unfounded and ill-informed. The field is being managed in line with global standards of optimizing hydrocarbon recovery. Gas is being produced at the maximum rate which will keep the field going until additional projects are put into place.
In fact, since 2010 approvals for annual budgets were held back delaying essential activities required to arrest the production decline and to reduce the risk of D1, D3 field being shut-in. If these budgets were approved on time, then the current production could have been 50-75% higher than today. Approvals were finally granted in April 2013 and these activities are now on war-footing and targeted for completion in 2015.
Additionally, international prudent development practices do not support drilling additional wells for the remaining reserves as accumulations that are small. Drilling and connecting the remaining 11 wells to comply with the last approved Development Plan would result in an inefficient spend of over $2 billion with no economic benefit. The plan is to produce the remaining reserves efficiently by spending around $500 million in repairs and compression.
BP and RIL had announced investments of over $5 billion over the next three-five years in the KG-D6 block to develop around four trillion cubic feet of discovered natural gas reserves. Are these investment plans getting affected by regulatory and policy hurdles?
Quick approvals to progress activities and achieving clarity on gas pricing for the long term will be key for us to be able to make investment decisions. The $5 billion investment over the next 3-5 years is to develop the R-series and the Satellite discoveries and connect them to the existing infrastructure and bring them to market starting 2017.
The R-series development plan got approved at a very fast pace at the end of August. The CCEA decision on pricing is a step in the right direction and we are hopeful that the Kelkar Committee will be able to come up with the roadmap to transition from the Rangarajan Committee recommended formula to an arms-length market determined price, this is what the production sharing contract and the 12th Five Year Plan provide for.
In the current scenario with policy hurdles affecting your current investment plans, would you be keen to participate in the upcoming NELP rounds or bidding for shale gas blocks?
BP invested in India for the long term. In addition to developing the discovered resources through our next wave of projects, we continue to explore in the existing blocks in the KG, Cauvery and Mahanadi basins. Our participation in future NELP rounds will be a factor of the blocks and basins on offer and the fiscal and contract terms that govern such auction.
The government is moving a Cabinet note to charge old gas price of $ 4.2 per million British thermal unit for gas produced from Dhirubhai-1 D1 and D3 fields, until previous commitments are met. How are you looking at the situation?
We are not aware of such a Cabinet Note. I feel however that it is important to clarify the issue of decline from the D1/D3 field. The D1/D3 field in KG-D6 block is the first and only deep-water ‘dry gas’ field in India and one of the very few ‘dry gas’ deep-water developments in the world with very few analogues.
Gas was discovered in this field in 2002 and the discovery was brought into production in a record time of 6.5 years in April 2009 on schedule and below budget. By September 2013 the field has produced over 1.9 trillion cubic feet of gas saving close to $16 billion of actual energy imports.
As production commenced it became evident that the field was more complex than originally envisioned and we believe that only 2.9 tcf of gas could be ultimately recovered from D1/D3. This is not the first field ever to face such a drastic revision. There are examples across the globe and in India where reserve estimates have had to be revised downwards based on production and drilling data.
All over the world and as per the PSC, the Development Plan is only a plan for developing the possible resources. It is very difficult to predict how the individual wells or the reservoir will ultimately perform over a period of time and as a result to predict the volumes that will ultimately be recovered.
Hence,the PSC requires that the contractor submits annual work programmes and budgets based on an increased understanding from the field performance and an annually revised estimate of the volumes that can be produced from the field in that year. To construe the production estimates in the Development Plan as a ‘commitment’ is flawed and not in line with the PSC.