The Issues At D6…
And Possible Reasons
It’s a mystery how the fairytale of India’s biggest gas discovery in decades has gone sour in less than two years flat. From promising to more than double India’s domestic natural gas production from the deep sea D6 block in the Krishna-Godavari basin, developer Reliance Industries shocked the market—and the government, it seems—by reporting lower production numbers and future estimates from the crown jewel. That this statement from RIL comes a few weeks after it sold 30 per cent stake in a “transformational” deal for 23 blocks has raised eyebrows—and questions.
No one in the government, including the exploration regulator Directorate General of Hydrocarbons (DGH) and the petroleum ministry, has ready answers. “We are still looking into it...no further comments,” is all petroleum secretary S. Sundaresan is willing to say. An RIL spokesperson “declined to comment”.
When contacted, Srivastava told Outlook, “We are yet to check with them (on the dip in production). We do not know the reason. We will be calling them for a review soon.” As per the DGH-approved development plan, RIL is scheduled to complete drilling 22 wells in the D1, D3 gasfields and MA oilfield of D6 block by April. So far, 18 wells have been made operational. Srivastava says that RIL has not yet sought any extension for drilling the additional wells. In his estimation, the planned four wells “should add around 10 mmscmd to total gas production”.
However, RIL’s communication to DGH reveals that the company isn’t in tune with the regulator’s timeframe for the new wells. It favours more time to study “optimum locations” given the complexity of the reservoir. As per the missive, RIL feels work on the additional well cannot be completed “before mid-2014 even if a decision is taken in the first quarter of 2011”.
All this is not good news —and far removed from the government’s gas supply commitments for 80 mmscmd. On December 23, 2009, RIL had even demonstrated preparedness of its facility to handle 80 mmscmd. But after an encouraging average of 60 mmscmd in the April-June 2010 quarter, things seem to have gone awry, raising several questions. Is it that RIL is planning recovery over a longer time period? Or is it part of a strategy to negotiate a better gas (price) deal? Or are there serious technological issues?
Planning Commission member B.K. Chaturvedi is among those who are perplexed. “Considering the fact that BP is planning to invest over $7 billion in the Reliance blocks, it does not stand to reason. Prime facie it is illogical,” he says. “We will be calling them for a review next month as part of the quarterly exercise.” Though the market has been quick to react to every bit of good and bad news about RIL’s gas foray, market analysts are not willing to fault the company’s dealings, barring its “gross underestimation of the situation and the way they got their calculations wrong”.
The high capital expenditure in D6, which has scaled $5.6 billion, is under the scrutiny of the Comptroller and Auditor General of India following charges of gold-plating of costs levelled by Anil Ambani during his legal tussle with elder brother Mukesh. A higher capital expenditure would mean the government share of profit petroleum would come down proportionately (the production-sharing agreement allows the operating company to first recover its costs; only after that will the government share of profits go up).
Investment advisor S.P. Tulsian admits that though “the market is interpreting pressure tactics” behind RIL’s rejoinder to the DGH, he does not share the view. In any case, he discounts the possibility of the government taking the risk of upwardly revising the D6 gas price at this stage “as it will add to the subsidy bill”, for fertilisers in particular. Under the government formula, fertiliser and power units have been given preference in the gas allocation from D6 block.
Similarly, market analyst Arun Kejriwal of kris feels, “I think besides the cost, perhaps the company never anticipated the kind of production cuts they would have to make in order to move forward.” Among energy experts, however, there is a divide. Veterans in the field point to the anomaly of RIL—and not DGH—highlighting the possibility of a further dip in D6 production. A pertinent question many raise is: was the true nature of the reservoir known, or has it come as a surprise?
Admitting that the regulator knew the area of exploration was complex, former director-general of DGH Dr Avinash Chandra, who has done considerable studies of the east coast, says, “D6 reservoirs are highly complex and heterogeneous. The thicker sand bodies have very high permeability.” Experts feel RIL could be resorting to a lesser rate of gas production to reduce the ‘water coning’ problem in the wells.
As RIL’s move to rope in BP indicates, there is definitely a technology issue. Also, in one stroke, the deal helps RIL recover its investment in the D6 block. Hopefully, the government and DGH will clear the air. Or, we could be entering an era of even higher gas prices.
By Lola Nayar with Arti Sharma
India should follow Ecuadorian prez Rafael Correa (D-6 and All That Gas, Apr 4). His government has enacted laws that changed production-sharing deals to service contracts where the government owns the oil and gas produced.
These type of speculative forecasts whish does not have indepth scientific basis is common to Indian multinationals in order to boost the price of their shares and go public to mop up big money.People must be careful in dealing with shares from these cos.But given the track record of the Indian public this is not going to happen.
billion dollar houses are made from non produced gas
You want RIL to invest and also to take risk, Then control teh price and take a share of profit and then income tax and other taxes from the profit RIL would make. At least teh the selling prices be as per teh international prices so that RIL has incentive to produce more and do less politics and less bribery.
Or is it designed that way so that RIL is froced to bribe to get better prices?
What is the government's role in private sector producing oil and gas? I understand like spectrum, oil fields are auctioned. The government should not interfere with the private sector's operation. Like any commodity, the price of gas is fixed internationally. The government can then reimburse the producer according to the subsidy.
Does CAG not take up audit of petroleum ministry. They are also dealing with financial matters. Till date no news, amusing.
We at Outlookindia.com welcome feedback and your comments, including scathing criticism
1. Scathing, passionate, even angry critiques are welcome, but please do not indulge in abuse and invective. Our Primary concern is to keep the debate civil. We urge our users to try and express their disagreements without being disagreeable. Personal attacks are not welcome. No ad hominem please.
2. Please do not post the same message again and again in the same or different threads
3. Please keep your responses confined to the subject matter of the article you are responding to. Please note that our comments section is not a general free-for-all but for feedback to articles/blogs posted on the site
4. Our endeavour is to keep these forums unmoderated and unexpurgated. But if any of the above three conditions are violated, we reserve the right to delete any comment that we deem objectionable and also to withdraw posting privileges from the abuser. Please also note that hate-speech is punishable by law and in extreme circumstances, we may be forced to take legal action by tracing the IP addresses of the poster.
5. If someone is being abusive or personal, or generally being a troll or a flame-baiter, please do not descend to their level. The best response to such posters is to ignore them and send us a message at Mail AT outlookindia DOT com with the subject header COMPLAINT
6. Please do not copy and paste copyrighted material. If you do think that an article elsewhere has relevance to the point you wish to make, please only quote what is considered fair-use and provide a link to the article under question.
7. There is no particular outlookindia.com line on any subject. The views expressed in our opinion section are those of the author concerned and not that of all of outlookindia.com or all its authors.
8. Please also note that you are solely responsible for the comments posted by you on the site. The comments could be deleted or edited entirely at our discretion if we find them objectionable. However, the mere fact of their existence on our site does not mean that we necessarily approve of their contents. In short, the onus of responsibility for the comments remains solely with the authors thereof. Outlookindia.com or any of its group publications, may, however, retains the right to publish any of these comments, with or without editing, in any medium whatsoever. It is therefore in your own interest to be careful before posting.
9.Outlookindia.com is not responsible in any manner whatsoever for how any search engine -- such as Google, Bing etc -- caches or displays these comments. Please note that you are solely responsible for posting these comments and it is a privilege being granted to our registered users which can be withdrawn in case of abuse. To reiterate:
a. Comments once posted can only be deleted at the discretion of outlookindia.com
b. The comments reflect the views of the authors and not of outlookindia.com
c. outlookindia.com is not responsible in any manner whatsoever for the way search engines cache or display these comments
d. Please therefore take due caution before you post any comments as your words could potentially be used against you
10. We have an online thread for our comments policy:
You are welcome to post your suggestions here or in case you have a specific issue, to directly email us at Mail AT outlookindia DOT com with the subject header COMPLAINT