Days after Reliance Industries (RIL) and British Petroleum (BP) announced their $20 billion “transformational” deal, operational details of the venture are becoming clear.
RIL and BP will shortly float a joint venture company which will look at the trading and marketing of natural gas in India. Over the next six months, this new JV will also select a new CEO and the other top management team to carry on the operations.
In an exclusive interaction with Business Standard, Country Head, BP Group of Companies, India, Sashi Mukundan said the new joint venture company would be independent of RIL and BP and would decide on future strategy and plans. “We will draw a strategy in place once we have decided on the manpower. We would be looking at marketing of domestic gas or imported gas.”
Despite the current government economics being strictly regulated, Mukundan felt that the market dynamics is changing fast and market-linked pricing is inevitable. “Even the D6 gas which is sold at current price of $4.2 per million British thermal unit will undergo revision in 2014. Gas sold under the administered price mechanism has seen an upward revision APM gas has been hiked from $1.79 per mbtu to $4.20 per mbtu. We are looking at a different trend which is positive and government is more flexible,” added Mukundan.
“There will be a technical committee which will jointly agree on what needs to be done with each of this block. It will have people from both the companies to make sure there is equal representation. We are extremely impressed with what RIL is doing. They have a good set of capable technical people. We did not want to upset the existing arrangement and wanted to keep RIL as the operator. We will bring in technology and experience from rest of the world to the table,” said Mukundan.
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RIL, which has been producing natural gas and crude oil from the K-G basin since April 2009, was unable to pump gas to full flow due to low well-head pressure. High pressure is very important to extract natural gas.
The natural gas output from the KG-D6 field averaged 54.5 million standard cubic metres a day in the quarter ended December 31, 2010, down from 60 mscmd achieved in the April-June quarter.
Analysts expect BP to help Reliance ramp up the gas output from the Krishna-Godavari basin from the current 56-58 million cubic metres a day to 80 million cubic metres a day in the coming six months.
The technical team will be separate from the management committee that each oversee oil and gas acreage involved in exploration and production as it won’t have any representation from either the upstream regulator DGH or the oil ministry.
RIL has its own E&P team, estimated to be 1000-member strong. Even though it is not clear how the man power will get realigned, Mukundan said, “We will pool all our resources to make sure we are successful.”
BP which has always been keen on the India market, said it had bid in the fifth edition of new exploration and licensing policy but this deal has clicked well for the company. “India market has always been attractive to us for — the resource play and its sheer size. Our deal with RIL gives us access to both. We get access to over 270,000 sq km of acreage at one shot; immediate production from KG D6 and discoveries from five different fields with more to go. Its a huge game changer on the exploration and production front for us. This deal also completes our presence in all the BRIC nations,” added Mukundan.
BP, this week, picked up a 30 per cent stake in 23 oil and gas blocks owned by RIL by paying $7.2 billion or Rs 32,400 crore. RIL will received another $1.8 billion if it strikes more oil or gas.
BP will make the payment in three parts before March 31, 2012. In all, BP and RIL said, total investments could touch $20 billion or Rs 90,000 crore.
BP says it has been spending the last seven years studying every possible basin and data available in India. This deal will give them the confidence to have a large scale play in the country where a lot still remains to be explored.
“For example, with the D6 block itself, deeper sections are still to be discovered. India is just starting its journey compared to other markets. This is a transformational partnership which, I believe, other would look at and emulate in India,” added Mukundan.
After its initial success at KG Basin, RIL's E&P performance in India has been somewhat patchy with minor discoveries in Mahanadi and Cauvery Basin. Its blocks in Kerala offshore are yet to be drilled.
RIL's D1, D3, 3P fields are under production and have a contingent resource of 5.7 trillion cubic feet (tcf).
Field development plans (FDP) have been submitted on the 9 satellite discoveries — D2, D4, D6, D7, D8, D16, D19, D22 and D23 which together hold 2.2 tcf of contingent resources.
FDP is being prepared for R-cluster and NEC 25 which hold 1.6 tcf and 1.5 tcf of reserves, respectively. Canada-based Niko Resources holds 10 per cent stake in NEC 25.
RIL has submitted declaration of commerciality to the directorate general of hydrocarbons for gas discoveries of its D29, D30, D31 and GS-01 and CY-D5 fields.