 "If gas were hoarded, pressure decline curve would've changed in KG-D6: Atul Chandra")
Reliance Industries Ltd (RIL) got a breather from the government in the form of a higher gas price from next year in return for a bank guarantee but the company would still need to prove its innocence on the charge of gas hoarding. Atul Chandra, an industry veteran who has worked with RIL as president (petroleum business) and ONGC Videsh as managing director, spoke to Jyoti Mukul on how hoarding is not possible. Edited excerpts:
Why is it that gas volumes produced from KG-D6 are less, though RIL had projected higher production?
Earth is not uniform. Through drilling, you are trying to understand an area. Drilling is based data you gather through technologies like imaging and seismic survey. Your confidence level improves as you drill. If reservoirs are more complex, mistakes happen. There are geological surprises, too. Imagine a gas cylinder. The more you draw gas, the pressure will decline and slowly it will become zero.
S K Srivastava, former director general hydrocarbons, had some time ago made a statement that Reliance is hoarding gas in the D6 field. The field was not showing any production decline at that time. By his understanding, if additional wells were drilled, higher gas production could be achieved. But soon after his statement, the field started showing distinct production and pressure decline. The main producing geo-body was well-connected, indicating that drilling additional production wells will not serve much purpose. The slope of pressure decline curve would have changed if Reliance was intentionally hoarding gas production but this is not the case.
But there are instances, especially in West Asia, where wells are shut when production is reduced.
Each reservoir behaves differently. If you do not produce at the required rate, you could lose the reserves. Sometimes, gas is released and crude oil production stops. In Assam, as head of operations with Oil and Natural Gas Corporation (ONGC), we had to shut down oil wells several times during 1988-1992 due to local bandhs and insurgency. Production could not come to the original level when production was resumed.
How is it that RIL found more gas in MJ-1 when it was under pressure from the government?
There are allegations that D55 drilling and gas discovery were deliberately delayed, which would have been termed hoarding. But the fact is MJ-1 was an exploration well in the D1-D3 mining lease area, that resulted in D55 gas discovery in a far deeper geologic formation and therefore its success (gas discovery) could not be assured in advance. Also, the government did not allow exploration in mining lease areas for several years, until an enabling policy circular was issued in 2013.
No oil company will take the risk to drill a deepwater exploration well, based on speculative 2-D seismic on early 90s vintage technology. Some experts have speculated the D-55 structure must have been known to RIL through such speculative surveys for long. D-55 prospect was identified through a focused and high technology processing, after Reliance made oil discovery in the same play in MA in 2006. Results of further exploration wells drilled subsequently in the same play outside that mining lease area were not encouraging.
Later, when BP joined Reliance, a regional study integrating all the data was carried out and the D-55 prospect was upgraded for drilling. This discovery is not only a great contribution to national wealth but has also opened new thinking in terms of exploration. Therefore, there was no deliberate delay in identifying and drilling of the D55 prospect by Reliance.
Wouldn’t you agree there was overestimation of reserves earlier, when RIL got its field development plan approved?
Based on the information available in 2005, one of the world’s most renowned consultants, Gaffney Cline & Associates, was commissioned to estimate resources. In the model prepared by them, it looked like several sand bodies amalgamated into one large reservoir unit. And, any inferior quality sand bodies in the fringe area would be connected and contribute to the main reservoir in the core. The estimation of resources was based on this model. It was also understood at that point in time that drilling of these isolated or dispersed areas with lower resource concentration will not be economically viable.
Subsequent well and production data in the area showed one main pool with large volume and dispersed volumes of gas in numerous small pools in the fringe, which were disconnected and might not be commercially exploitable. Even then, RIL drilled two wells in these inter-channel areas, with lower resource concentration to collect data. Thus, the RIL application for a mining lease was not on false pretences and the simplistic assumption that all gas pools are isolated and small is not correct.
Commercial decisions need actual data for risk mitigation before major investments. The first step in this direction is high-tech seismic survey and its processing. RIL has rightly followed this route.
Such developments, in early stages, in reserve estimation and geological surprises are a part of normal risk in the international exploration and production business, especially while dealing with virgin basins that has no analogy. We all become wiser in the hindsight.
Some in the industry say if it is not hoarding, then RIL could have damaged the reservoir.
There is a certain optimum level beyond which you cannot produce. If you start producing more than that, there could be water and sand ingression that could choke the well and damage it. But this has not happened.
There is a demand that RIL should be thrown out of the production-sharing contract (PSC). Has such a thing happened globally?
I haven’t heard of anything like that. PSCs are progressive and structured in a way to promote investment and production. Take the case of Oman. When we signed a PSC in 2005, the agreement did not have a provision for gas production. When this was pointed out to the minister there, he said the terms of contract would be changed to give a 15 per cent rate of return to the company to make gas production viable. RIL, however, surrendered the block when after drilling a few wells, it did not find oil or gas.
Even when I was in ONGC Videsh and we acquired a block in Iraq, we were asked to pay a signature bonus of some $8 million but due to UN sanctions, we could not pay it. We told their government it was not possible to pay due to unforeseen circumstances. At this, we were told we could do without paying the bonus. A country can succeed only when there are companies ready to take huge risk and when the government plays a role of an enabler.
Why is it that gas volumes produced from KG-D6 are less, though RIL had projected higher production?
Earth is not uniform. Through drilling, you are trying to understand an area. Drilling is based data you gather through technologies like imaging and seismic survey. Your confidence level improves as you drill. If reservoirs are more complex, mistakes happen. There are geological surprises, too. Imagine a gas cylinder. The more you draw gas, the pressure will decline and slowly it will become zero.
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But there are instances, especially in West Asia, where wells are shut when production is reduced.
Each reservoir behaves differently. If you do not produce at the required rate, you could lose the reserves. Sometimes, gas is released and crude oil production stops. In Assam, as head of operations with Oil and Natural Gas Corporation (ONGC), we had to shut down oil wells several times during 1988-1992 due to local bandhs and insurgency. Production could not come to the original level when production was resumed.
How is it that RIL found more gas in MJ-1 when it was under pressure from the government?
There are allegations that D55 drilling and gas discovery were deliberately delayed, which would have been termed hoarding. But the fact is MJ-1 was an exploration well in the D1-D3 mining lease area, that resulted in D55 gas discovery in a far deeper geologic formation and therefore its success (gas discovery) could not be assured in advance. Also, the government did not allow exploration in mining lease areas for several years, until an enabling policy circular was issued in 2013.
No oil company will take the risk to drill a deepwater exploration well, based on speculative 2-D seismic on early 90s vintage technology. Some experts have speculated the D-55 structure must have been known to RIL through such speculative surveys for long. D-55 prospect was identified through a focused and high technology processing, after Reliance made oil discovery in the same play in MA in 2006. Results of further exploration wells drilled subsequently in the same play outside that mining lease area were not encouraging.
Later, when BP joined Reliance, a regional study integrating all the data was carried out and the D-55 prospect was upgraded for drilling. This discovery is not only a great contribution to national wealth but has also opened new thinking in terms of exploration. Therefore, there was no deliberate delay in identifying and drilling of the D55 prospect by Reliance.
Wouldn’t you agree there was overestimation of reserves earlier, when RIL got its field development plan approved?
Based on the information available in 2005, one of the world’s most renowned consultants, Gaffney Cline & Associates, was commissioned to estimate resources. In the model prepared by them, it looked like several sand bodies amalgamated into one large reservoir unit. And, any inferior quality sand bodies in the fringe area would be connected and contribute to the main reservoir in the core. The estimation of resources was based on this model. It was also understood at that point in time that drilling of these isolated or dispersed areas with lower resource concentration will not be economically viable.
Subsequent well and production data in the area showed one main pool with large volume and dispersed volumes of gas in numerous small pools in the fringe, which were disconnected and might not be commercially exploitable. Even then, RIL drilled two wells in these inter-channel areas, with lower resource concentration to collect data. Thus, the RIL application for a mining lease was not on false pretences and the simplistic assumption that all gas pools are isolated and small is not correct.
Commercial decisions need actual data for risk mitigation before major investments. The first step in this direction is high-tech seismic survey and its processing. RIL has rightly followed this route.
Such developments, in early stages, in reserve estimation and geological surprises are a part of normal risk in the international exploration and production business, especially while dealing with virgin basins that has no analogy. We all become wiser in the hindsight.
Some in the industry say if it is not hoarding, then RIL could have damaged the reservoir.
There is a certain optimum level beyond which you cannot produce. If you start producing more than that, there could be water and sand ingression that could choke the well and damage it. But this has not happened.
There is a demand that RIL should be thrown out of the production-sharing contract (PSC). Has such a thing happened globally?
I haven’t heard of anything like that. PSCs are progressive and structured in a way to promote investment and production. Take the case of Oman. When we signed a PSC in 2005, the agreement did not have a provision for gas production. When this was pointed out to the minister there, he said the terms of contract would be changed to give a 15 per cent rate of return to the company to make gas production viable. RIL, however, surrendered the block when after drilling a few wells, it did not find oil or gas.
Even when I was in ONGC Videsh and we acquired a block in Iraq, we were asked to pay a signature bonus of some $8 million but due to UN sanctions, we could not pay it. We told their government it was not possible to pay due to unforeseen circumstances. At this, we were told we could do without paying the bonus. A country can succeed only when there are companies ready to take huge risk and when the government plays a role of an enabler.