Reliance may skip future oil & gas auctions

Company says policy flip-flops a reminder of pre-1991 era

Hit by the government’s flip-flops on policies related to the energy sector, Reliance Industries Ltd (RIL), the country’s largest private sector refiner, has said it may not participate in exploration and production (E&P) ventures in India.

“With the government going back on its own policies and words in the last couple of years, with talks of price control and regulatory hurdles, we are going back to the pre-1991 era,” said B Ganguly, president and chief operating officer (business operations, petroleum, exploration and production).

“Unless it is demonstrated that irrespective of any government, the continuation of economic and sectoral policies would be respected, no investor will have confidence. We will have to take a call on whether to invest in future E&P bid rounds in India,” he added. He said though confidence in the country’s E&P sector was slowly improving, “unless it improves significantly, we are not very sure we would participate in future exploration and production bid rounds.”

RIL has been facing regulatory hurdles in the case of some of its E&P assets. The company, which has seen a steady decline in production from its KG-D6 block’s D1 and D3 fields, has been seeking market price for gas. This June, despite opposition, including that from within the Cabinet, the government approved doubling of natural gas prices from the present $4.2 a million British thermal unit (mBtu) to $8.4 an mBtu from April 1 2014.

RIL has said all talk on the gas price revision recommended by the Rangarajan committee benefiting RIL was baseless.

In a letter to parliamentary standing committee on finance Chairman Yashwant Sinha,

Executive Director P M S Prasad said, “The bulk of the gas — 70 per cent — is produced by public sector companies such as Oil and Natural Gas Corporation and Oil India. RIL’s KG D6 block has a mere 15 per cent share in the total domestic production in India.”

He said with RIL holding only 60 per cent interest in the KG-D6 block, its share in domestic production was less than 10 per cent, adding further incremental gas production from KG-D6 was unlikely before 2018. “Geological surprises have led to a decline in production from the D1 and D3 fields. With new data emerging from four years of production, it is now clear not much additional gas can be produced from this field.”

RIL said the cost-plus regime for gas pricing wasn’t only against the contractual commitment of the government under the production-sharing contract, but also of little economic and commercial relevance. This was because the E&P sector has a low probability of success and faces geological risks.

RIL argues it didn’t invest in the D1 and D3 fields of the KG-D6 block alone. “We invested in the exploration and production business. We have not even recovered our investments in KG-D6,” Ganguly said. So far, RIL’s total investment stands at $22 billion. It is planning to invest more in a couple of projects awaiting government approvals.

“When we entered the business, we were willing to assume geological risks. Both the commodity price and the capital cost being market-related risks, we would have had a reasonable hedge between the two risks. But now, with a poor regulatory record and commodity price control, all the four risks have come to the investor,” said Ganguly.

"All we have been asking the government is to give us the regime that existed when we entered this business. When the government controls the commodity price but cannot control the capital cost as it is market related, investors will be on a shaky ground and would not like to invest in such high risk business," he added.