Canada’s Niko Resources, which co-owns Krishna-Godavari D-6 (KG-D6) along with Reliance Industries Ltd (RIL) and BP Plc, has cut estimates of the natural gas field’s reserves by 80 per cent. Shares of RIL lost 2.2 per cent to close at Rs 718.60 on the BSE on Thursday, while the Sensex was down 0.80 per cent.
The Canadian oil and gas producer said proved plus probable (2P) reserves at the KG-D6 block had decreased to 1.93 trillion cubic feet (tcf), from its previous estimates of 9.65-9.9 tcf.
Deepak Pareek, analyst at Prabhudas Lilladher, said the cut was a negative development, but was in line with expectations, as BP had also given a lower reserve estimate for the block.
RIL had originally put 2P reserves at the Dhirubhai 1 and 3 (D1&D3) fields in the KG-D6 block at 5.32 tcf in the November 2004 initial field development plan. In 2006, it scaled up the reserves to 11.3 tcf and accordingly went for an increase in the capital expenditure to $8.8 billion, from the earlier $2.4 billion. The increase in capex had been questioned by the Comptroller and Auditor General.
The petroleum ministry has also made a move to disallow cost recovery of $1.2 billion in the field since RIL has failed to meet the projected gas output. Natural gas output at KG-D6 fields dipped to 31.33 million standard cubic metres per day (mscmd) this month, after hitting a peak of 61.5 mscmd in June 2010. In 2006, RIL had stated output would rise to 80 mscmd by 2012-13.
RIL, the operator of the deep-water block with a 60 per cent stake, did not comment on the development. The UK’s BP Plc owns 30 per cent, while Niko holds 10 per cent.
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In its ‘reserves and contingent resources update’, Niko said total 2P natural gas reserves in its various blocks had fallen almost 51 per cent to 377 billion cubic feet equivalent (bcfe), mainly due to lower reserves in KG-D6.
“The reason for the decline in reserves referred to above relates to the D-6 block. 2P reserves at D-6, as on March 31, 2012, had reduced to 193 bcfe,” it said in a statement. The 7,645-sq km KG-D6 block has 19 oil and gas discoveries. Of these, production from the MA oil find began in September 2008 and from the D1&D3 fields, gas discoveries started in April 2009.
Production was further slated to drop to 28 mscmd this financial year and to 20 mscmd in 2012-13, oil minister S Jaipal Reddy had told Parliament last month. Niko said the (Indian) government was “considering increasing the price” of the KG-D6 gas for 2012-13 and 2013-14. The government had fixed $4.2 per million British thermal unit as the price of gas for the first five years of production (up to March 31, 2014). “A price increase during these periods to $8.00 per mmBtu net would increase NPV10 (after tax net present value, discounted at 10 per cent) to approximately $15.89 per share”, from $13.05 per share at the current gas price, Niko said.
Oil ministry proposes former CJI Khare as its arbitrator in RIL row
Meanwhile, the oil ministry proposed the name of former Chief Justice of India V N Khare as its arbitrator to decide on the dispute with RIL over fall in natural gas production from KG-D6 gas fields. The ministry wants to penalise RIL for 25.33 mscmd output from the main fields in KG-D6 falling way short of 80 mscmd target.