RIL to ally with Exxon to bid for local drilling

Reliance Industries, may bid with BP Plc, Exxon Mobil Corporation and Chevron Corporation for drilling rights in India, to share rising exploration costs and gain the expertise of its foreign peers.

The companies may work together for the first time when permits are auctioned later this year, P M S Prasad, the company's president for oil and gas, said in a June 8 interview in Mumbai. Reliance needs crude to supply the world's third-biggest oil refinery, in Jamnagar on India's west coast.

Reliance wants the equipment and experience gained by Exxon and BP for more than a decade in deep-sea areas such as the Gulf of Mexico. Alliances with the world's largest oil companies would reduce risks and costs at a time when

Reliance's chairman, Mukesh Ambani, has committed to spend $25 billion on drilling, refining, chemicals and supermarkets.

"We are still like a new kid on the block and so we need to learn from the industry,'' Prasad said. "We want to partner to share resources, to share technology, knowledge, experience and risks.''

Reliance now has contracts to drill in 34 areas in India, spread over 331,000 square kilometers, according to its web site. The company made the biggest discovery of 2002 in an area off India's east coast that may double domestic gas output once production starts. The field will save the country 20 million metric tonnes of liquefied natural gas imports, Prasad said.

"The big companies have the technology and the experience,'' said Jon Thorn, who manages $250 million in Indian stocks at India Capital Fund in Hong Kong. ``It makes no sense to waste time and money trying to do it alone because time is very much money.''

The company has agreed with Australia's Santos to jointly explore for oil and gas, Prasad said.

Reliance shares are up 34 per cent this year to Rs 1699.55 on the Bombay Stock Exchange, where the benchmark Sensex index has gained 2.5 per cent. The stock fell 20.85 rupees, or 1.2 per cent, to Rs 1,678.7.

Reliance needs to overcome a shortage of rigs and contractors, which is forcing the company to curb exploration. The company is facing delays in delivery of drilling rigs to develop the gas field discovered in the Krishna Godavari basin.

The field is scheduled to start producing in June 2008 and reach peak production of 80 million cubic meters a day by December, Prasad said. Reliance will spend $5.2 billion in its development.

"We were confident of exploring in the KG basin with technology available with the service providers so we did it alone,'' Prasad said in the interview at the company's Mumbai headquarters.

India may offer as many as 85 oil and gas areas in a seventh auction of exploration rights, V K Sibal, India's director general of hydrocarbons, said March 2. The fields may be auctioned in August.

Transocean Inc., the world's largest offshore oil and gas driller, said in a May 1 report the rig Discoverer 534 will start drilling in Reliance's Krishna Godavari area in August, two months later than forecast. A second rig, Deepwater Expedition, will begin nine months late in March 2008.

Reliance is banking on Transocean's rigs to drill in water depths of 7,000 to 10,000 feet and ensure India's biggest gas project starts on schedule. An exploration boom tripled rig usage over four years, worsening a shortage that set back delivery dates.

"I don't foresee any delays,'' Prasad said. Reliance is directing rigs to drill wells used in developing the field, at the expense of exploration in new areas, he said.

Rig costs including services for chartering next year have risen to as much as $1.2 million a day from the $500,000 a day offered earlier this year, Prasad said.

Costs "are going through the roof and they are unlikely to come down as you keep going further, looking for oil,'' India Capital's Thorn said.

About 25,000 employees and contractors are working on the project, Prasad said. Of the total, the company will have 10,000 workers at the site at Kakinada, where gas will be brought from the offshore field and pumped 1,400 kilometers to the western state of Gujarat, passing the country's business capital, Mumbai.

"We have more than 100 employees sitting with various contractors across the world to ensure that supply schedules are met,'' Prasad said.

The company expects to earn about $4.5 per million British thermal unit for the gas at the well-head without including transportation and other charges, Prasad said. The company is in the process of finalizing a price, he said.

Reliance is in talks with GAIL, the biggest natural gas distributor, and companies such as Bharat Petroleum Corporation, India's third-biggest state-run refiner, to use their pipelines to sell part of the output.

"They have the network and their capacity is not fully utilized. Then why not use their infrastructure and facilities?'' Prasad said. "We expect to sell as much as 50 per cent of our output through partners such as GAIL.''

GAIL's pipelines, which have a capacity to supply 140 million cubic meters a day of gas, are run at about 55 per cent of capacity because of a lack of supply, Chairman U D Choubey said February 22.

GAIL plans to expand its network to 11,000 kilometers from 4,000 kilometers now as demand increases, Choubey said on March 30.