The output comprised 32.94 mmscmd from the D1 and D3 gas fields and 6.86 mmscmd from the MA oilfield. The KG-D6 production is lower than 61.5 mmscmd rate achieved in March, 2010, as a drop in pressure in the wells and increased water ingress has led to a lower per-well gas output.

The report said of the 18 wells drilled, completed and put on production in the D1 and D3 fields, four wells— A2, B1, B2 and B13— had to be shut or closed due to high water cut/sanding issues. The output from KG-D6 is short of the 70.39 mmscmd-level (61.88 mmscmd from D1 and D3 and 8.5 mmscmd from the MA field) envisaged by now as per the field development plan approved in 2006.

While Reliance holds 60% interest in KG-D6, UK’s BP Plc holds 30% and Niko Resources of Canada the remaining 10%. Reliance started natural gas production from the KG-D6 fields in April 1, 2009, with output of about 40 mmscmd.

The MA oilfield currently produces about 12,715 barrels of crude oil per day. In addition, 1,831 barrels of condensate are produced from the field every day. The report said 14.89 mmscmd of the gas output is being sold to fertiliser plants and 22.02 mmscmd to power plants. The remaining 2.89 mmscmd is consumed by other sectors, including those fed by the East-West pipeline that transports gas from the East Coast to consumption centres in the West.

Reliance had projected an output of 39.50 mmscmd of gas during December. As per the status report, out of the 22 wells planned in in Phase-I of D1 and D3 field development, 18 wells have been drilled and completed so far. Of these, 14 wells were put on production, while four wells were kept closed due to high water cut and sanding issues.
Agencies

RIL Senior Vice-President (Commercial) B Ganguly on November 18 wrote to the Oil Ministry and the Directorate General of Hydrocarbons (DGH) saying, “The price at which the condensate has been sold represented the best available price and there was no competing or even matching offer.”

Replying to the DGH’s concerns over the sale of gas condensate from KG-D6 to the Jamnagar refinery, the company wrote saying the sale was done following a transparent competitive bidding system, as envisaged under the Production Sharing Contract.

In response to a tender for June, 2011, to May, 2012, sale, the company’s Jamnagar refinery in an April 18 bid quoted a price of Brent crude oil price minus $20 per barrel. Hindustan Petroleum Corp Ltd (HPCL) submitted its bid on April 19 quoting a price of Brent minus $25 per barrel.

On RIL’s request to both bidders to review their price proposals, “HPCL revised its bid upward by a mere 5 cents per barrel,” the company said. “HPCL’s revised offer of Dated Brent minus $24.95 per barrel was still $4.95 per barrel lower than that offered by RIL’s Jamnagar Refinery,” he wrote.

“It may be noted that despite HPCL’s Visakhapatnam Refinery being located on the East Coast, it quoted a price which was much lower than the price quoted by a refinery (RIL Jamnagar) at the northern end of the West Coast. HPCL’s price was considered as not justified and against the interest of the parties to the PSC,” he added.

“The bid of RIL Jamnagar, was clearly the best available price at the delivery point… Clearly the sale of KG-DWN-98/3 gas condensate was finalised through a competitive bidding process involving all oil refining companies in India, (and) the requirements of Article 19.2 of the PSC on valuation have been met,” the company wrote.

RIL said no “positive response from any party (either from PSUs or private sector refineries)” was received against a tender for sale of condensate in 2010-11. “HPCL specifically mentioned in their regret email dated May 28, 2010, that due to logistics constraints, they would not be able to  participate in the tender,” the company said, adding that only its Jamnagar Refinery quoted a price of Brent minus $25.6 per barrel.

RIL informed the Oil Ministry of the results of the tender through a letter dated June 2, 2010, which was followed by a reminder on June 30, 2010.
Agencies

RIL produced 44.5 mmscmd of natural gas during the week ended September 5 as against 44.8 mmscmd production last month, according to the status report filed by the company with the Oil Ministry here. The output comprised 37.1 mmscmd from Dhirubhai-1 and 3 (D1 and D3) gas fields and 7.4 mmscmd from MA oil field in the KG-DWN-98/3 or KG-D6 block.

D1 and D3 gas fields produced 37.7 mmscmd of gas in August, while output from MA field was 7.1 mmscmd.  As per the status report, out of the 22 wells to be drilled in the Phase-I of Dhirubhai-1 and 3 field development plan, 18 wells have been drilled and completed so far. Of these, 16 wells were put on production as two wells (B2 and B13) were kept closed due to high water cut.

MA oilfield produced an average of 14,080 barrels of crude oil per day besides the 7.4 mmscmd of associated gas. Of the total 44.5 mmscmd, about 13.8 mmscmd of gas was sold to fertiliser plants and another 24.1 mmscmd to power plants. The remaining 6.6 mmscmd was consumed by other sectors like sponge iron plants, LPG, city gas distribution networks and petrochemical/refineries.

Minister of State for Petroleum and Natural Gas RPN Singh had last month informed Parliament that output from KG-D6 was short of 70.39 mmscmd envisaged by now as per the field development plan approved in 2006. “The contractor [Reliance] was advised by [oil regulator] DGH to expeditiously drill more development wells in D1 and D3 field as per FDP in order to enhance gas production in KG-DWN-98/3 block,” he had stated.

Reliance has so far drilled only 20 out of the committed 22 wells on D1 and D3 as reservoir has not performed on expected lines.  Of the 20 wells drilled, only 18 wells are under production. Further in the FDP approved in 2006, RIL had committed to drill 31 wells by the current fiscal-end.

RIL currently holds 90 per cent interest in KG-D6, while the rest is with Niko Resources of Canada. It is selling 30 per cent in the block and 22 others to UK’s BP Plc for US $7.2 billion. RIL started natural gas production from KG-D6 fields from April 1, 2009.

Its partner Niko had last month stated that “declines [in production] are expected to continue until work-overs are completed and/or additional wells are tied-in.” The present output is less than about 60 mmscmd production in the same period a year-ago.
Agencies

First Solar will deliver 40 Mw of its thin film modules to Reliance by year-end for its project in Jaisalmer in the western Indian state of Rajasthan. The project will supply electricity to the populous city of Mumbai.

The remaining 60 Mw will likely be delivered in 2012, under the agreement with billionaire Anil Ambani’s Reliance Power. Last month, the US Export-Import Bank approved an US $84.3 million direct loan to Reliance Power’s Dahanu Solar Power Pvt unit to purchase First Solar panels for the first 40 Mw of the project.

First Solar had said in its latest earnings conference call that India will account for about 10 per cent of its 2011 sales in megawatts and offset weakness in the top markets in Europe.
Agencies

The Directorate General of Hydrocarbons (DGH) wants the government to also get a share of the profits from the US $0.135 per million British thermal units (mmBtu) marketing margin charged by Reliance from KG-D6 consumers, sources privy to the development said.

It wants the marketing margin to be added to the gas sale price of US $4.20 per mmBtu and indicated that profit-sharing between the contractor and the government should happen at US $4.335 per mmBtu. At present, RIL and the government split profits at the gas sales price of US $4.20 per mmBtu after deducting the project cost.

Sources said the DGH’s demand may open a Pandora’s Box, as even public sector firms like GAIL charge a marketing margin for the effort and risk they take in selling the hydrocarbon. GAIL charges up to US $0.18 per mmBtu as a marketing margin and none of it is shared with the government.

The DGH demand also runs contrary to the stance the Oil Ministry took on the issue in Parliament last year. The then-Oil Minister Murli Deora had on February 24, 2010, told the Rajya Sabha that oil and natural gas producers, including Reliance, need not share the marketing margin they charge from their clients with the government.

Deora had said the marketing margin of USD 0.135 per mmBtu for KG-D6 gas was a bilateral issue between the seller (Reliance) and the buyer. The government has approved the price for gas sales at the delivery point of the KG-D6 field as per the provisions of the Production Sharing Contract (PSC) inked with RIL, he said.

“The said price (US $4.2 mmBtu for five years) does not include any charge beyond the PSC delivery point. The marketing margin (levied by Reliance) is beyond the delivery point and arises as a result of the gas sale and purchase agreement signed between the seller and the buyer,” Deora had said.

The PSC provides for sharing of revenues from the sale of gas between the government and the contractor at the said price at the delivery point. It does not envisage sharing of revenues earned by the contractor from marketing margins with the government, he had further stated.

Sources said the marketing margin was in lieu of the risks and costs incurred by the contractor on marketing the gas. The US $0.135 per mmBtu marketing margin over-and-above the gas sale price was to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on the quality and quantity of gas, or the terms of the GSPA.

Furthermore, the marketing margin is charged by Reliance on account of its extensive efforts to identify customers, execute and manage gas sales and purchase agreements (GSPAs), besides gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, sources said.

The marketing margin was opposed by the Anil Ambani Group, but after the Oil Ministry clarification, it was deemed settled.

Other gas marketers like state-run GAIL India also charge a marketing margin. GAIL charges a US $0.18 per mmBtu margin on the sale of regasified-LNG and about US $0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravva.
Agencies

Crude oil prices  rose 16.8 percent in the March quarter, which should help Reliance, India’s largest-listed firm, significantly expand refining and petrochemicals margins.

Rising crude prices are also likely to boost profits at state-run ONGC. “Crude oil prices continue to be on an upward trend and that is good news for both companies,” said Ambareesh Baliga, chief operating officer at Way2Wealth Securities.

“But concerns remain for both — gas output in case of Reliance and subsidy burden for ONGC, which is why the stocks have been under pressure,” he said.

Reliance is expected to report 17 percent growth and its highest-ever quarterly net profit, with gross margins at its flagship refining business expected to touch $10 a barrel for the March quarter, analysts said.

The company posted a refining margin of $7.5 per barrel a year ago, and $9 a barrel in the December quarter. The refining segment contributes nearly 70 percent of the company’s revenues.

Near-term prospects for the petrochemicals-to-retail conglomerate are likely to depend on its gas production, which currently accounts for just 6-7 percent of revenues but had been expected to contribute significantly in the financial year that began on April 1.

India’s Directorate General of Hydrocarbons said in March Reliance was pumping 53 million standard cubic metres per day (mscmd) from the D6 block off India’s east coast — already less than the 60 mscmd it produced last year, and far off peak capacity of 80 mscmd.

Last month, Reliance warned the upstream regulator that gas output from key fields in its main producing block may further drop 12 percent next year, a source told Reuters. 

The concerns over Reliance’s gas production have for months dampened growth outlook for the Indian energy giant and kept its shares under pressure.

Shares in the company, valued by the market at $75.1 billion, have declined nearly 5 percent so far in 2011, contributing significantly to the comparative 7 percent fall in the main index , in which the stock has the heaviest weight.

In February, Reliance agreed to sell a stake in 23 oil and gas blocks in the KG basin to BP PLC in a $7.2 billion deal, and is expected to benefit from BP’s deepwater exploration expertise in the medium term.

The company, controlled by Mukesh Ambani, the world’s ninth-richest man according to Forbes magazine, is also looking to widen beyond its existing businesses into telecom, retail, power and financial services.
SUBSIDY WEIGHS ON ONGC

ONGC is expected to report a 34 percent jump in quarterly net profit, helped by higher prices of crude oil and gas. Net average realisations could rise to $58 a barrel from $51 a year ago, analysts said.

However, the company will not be able to reap the full rewards of high world oil prices as it has to share the subsidy burden in the form of discounts to state-run refiners.

India granted autonomy to state-run refiners in June to fix retail prices for petrol, but the government continues to control prices of diesel, cooking gas and kerosene.

ONGC’s subsidy burden for the quarter could nearly double to 97 billion rupees from 50 billion rupees a year ago, said Jagdish Meghnani, sector analyst at Alchemy Share and Stock Brokers. The subsidy is expected to rise further in the current year.

Agencies

The world’s fourth-largest economy is expanding at more than 8 per cent a year. But it struggles to pump even a third of the oil it guzzles, while gas use — limited by poor infrastructure — is already 30 per cent more than production. India has sought to attract the big international players since 1999 with its New Exploration Licensing Policy (NELP) but still only two foreign companies — BG and Cairn Energy — are producing any serious amounts in the country.

“This deal brings in one of the majors in a material way. Twenty-three blocks and an important gas play,” said Richard Quin, lead analyst for West Asia, North Africa and India at energy research consultancy Wood Mackenzie. “I suspect the Indian government is very happy about it.”

BP, which has only one block, picked up through Indian government auctions, is now paying privately-owned Reliance for a 30 per cent stake in 23 of its blocks, including the big gas producer D6 in the Krishna Godavari basin. The blocks now produce about 1.8 billion cubic feet/day (bcf/d) — more than 40 per cent of India’s total production and more than 30 per cent of total consumption.

The British-based company figures there are at least 15 trillion cubic feet (tcf) of gas resources in the blocks — enough to meet India’s current rate of consumption for seven years.  It is BP’s biggest investment in exploration and production in Asia, with a potential total of US $20 billion linked to exploration successes.

“It would be wrong to downplay the prospectivity of the 23 blocks. There has to be a reason BP bought in. Fundamentally, BP is in the business of producing hydrocarbons,” Quin said. At the same time, BP could use its technical expertise to boost output at Reliance’s D6 block.

It is India’s biggest gas find but output has slipped because of technical problems to about 52 million cubic metres a day (mcm/d) from 60 mcm/d in October and short of a target 80 mcm/d.

Reliance Industries will benefit from the tie-up with BP by being able to take advantage of BP’s technical capabilities, analysts said, in turn enhancing the valuation of India’s biggest company’s existing assets. BP India head Sashi Mukundan would not be drawn on future output estimates.
Agencies

According to the rlease from RIL “In view of the threat from the cyclone Laila, Reliance Industries has exercised caution and suspended all drilling operations in the East Coast. The rigs operating in its contract areas were moved to safe zones. All production operations on the FPSO (Floating Production Storage and Offloading ) vessel operating in the KG D6 block was also suspended. We remain vigilant and weather conditions are being monitored round the clock to determine when production can be restarted safely. The same has been conveyed to all authorities including MoP&NG and DGH.”

RIL has halted the production in the MA field 48 hours back itself. The MA field was producing around 32,000-33,000 bopd and 8 mmscmd. KG-D6’s current gas production of around 63 mmscmd included 8 mmscmd from MA fields. The met department has put both the coastal states on high alert as the cyclone.                                                                                                                           News Agencies

Cyclone Laila is forecast to reach hurricane strength before making landfall in Andhra Pradesh on Thursday. The MA field was producing around 32,000-33,000 bopd and 8 mmscmd. KG-D6’s current gas production of around 63 mmscmd included 8 mmscmd from MA fields.

According to reports, RIL has also suspended drilling operations at KG-D6 and a neighbouring KG-D3 block. Meanwhile, operations of refineries on the east coast and Cairn India’s offshore Ravva oil and gas fields in the KG basin were not affected.

“India’s Reliance has been a major supplier of gasoline to Iran. However, in January 2009, Reliance reportedly agreed to terminate gasoline sales to Iran once its current contractual obligations expire,” said a latest report of the Congressional Research Service (CRS). CRS is the independent and bipartisan research wing of the US Congress that prepares periodic report for US lawmakers on issues of their interest.

“Previously, some members of Congress called on the US Export-Import Bank to rescind two loan guarantees worth US $ 900 million authorised to RIL, in support of RIL’s petroleum refinery equipment and services (US $ 500 million) and for gas development and exploration in India’s Bay of Bengal region (US $ 400 million),” the report said. In fact, Reliance is not the only company to have terminated its gasoline supplies to Iran, the CRS report said.