Dhirubhai-1 and 3 (D1 and D3), the first two of the 18 gas discoveries in the Krishna Godavari basin KG-DWN-98/3 or KG-D6 block in the Bay of Bengal that have been put on production, and MA oilfield in the same area produced 40.35 mmscmd in the last week of November, according to the status report filed by the company with the oil ministry.

The output in the week ending November 27 comprised 33.47 mmscmd from D1&D3 gas fields and 6.88 mmscmd from MA oil field. The KG-D6 production is lower than 61.5 mmscmd rate achieved in March 2010 as drop in pressure in the wells and an increased water ingress lead to lower per-well gas out.

The report said of the 18 wells drilled, completed and put on production on D1&D3, 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 (61.88 mmcmd from D1&D3 and 8.5 mmcmd from MA field) level 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. The MA oilfield currently produced about 12,624 barrels of crude oil per day.

The report said 14.47 mmscmd of the gas output is being sold to fertiliser plants and 22.86 mmscmd to power plants. The remaining 3.02 mmscmd is consumed by other sectors, including by the East-West pipeline that transports gas from the east coast to consumption centres in the west.

Reliance projected an output of 40 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.
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“Reliance says the production has fallen because of geological reasons. It may be true but there are 50% observers who are not fully convinced with the reasoning,” the source said.

RIL was to drill 22 wells on the Dhirubhai-1 and 3 gas fields in KG-D6 block by March 31, 2011 and 31 wells by March 31, 2012, as per the 2006 field development plan. But the Mukesh Ambani-run firm drilled only 20 wells till now, of which it has not put two of the wells on production yet.

The source said failure of RIL to comply with its commitments made the oil ministry seek legal opinion. The SGI in its opinion quoted Section 3.2 of the Production Sharing Contract (PSC) that states, “… Amounts paid with respect to non-fulfilment of contractual obligations” can be disallowed for cost recovery.

“…The expenditure incurred which has resulted in excess capacity / underutilisation of asset created on account of failure of the contractor (RIL) to adhere to the field development plan would fall within the provisions of Section 3.2,” SGI said. RIL has built facilities at KG-D6 to handle 80 million standard cubic meters per day of gas output which was expected by April 2012 but production currently is just 40.6 mmsmcd.

“Excuse of geological uncertainty (for not drilling committed wells) does not wash with everyone,” the source said adding as the ministry contemplated next move, RIL slapped an arbitration notice challenging the proposed move to disallow a part of $5.7 billion expenditure already made in KG-D6 by restricting cost recovery in proportion to production.

PSC for KG-D6, where drop in pressure in the wells and an increased water ingress lead to lower per-well gas output and halt in drilling pending more studies, allows operators to recover 100% of  expenditure on exploration and production before sharing profits from the field with the government. It does not link cost-recovery to output.

RIL and its new partner BP Plc of UK say new wells in KG-D6 can come up not before 2014. Incidentally, 2014 is also the year when the current $4.2 per million British thermal unit gas price for the block comes up for review. Production from KG-D6 field had reached 61.5 mmscmd in March 2010. However, from December 2010, the production started declining.

The government had in 2006 approved an investment of $8.8 billion in two phases in developing Dhirubhai-1 and 3 gas fields in the KG-D6 block (Phase-I: $5.2 billion and Phase-II $3.6 billion).
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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.
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The Dhirubhai-1 and 3 (D1&D3) gas fields and the MA oilfield in the KG-DWN-98/3, or KG-D6, block in the Bay of Bengal produced 41.06 mmscmd of gas in the week ending November 13, according to a production report filed by the operator (RIL) with the Oil Ministry here.

Of the 18 wells drilled, completed and put on production on D1&D3, four wells — A2, B1, B2 and B13 — had to be shut or closed due to high water cut/sanding issues, the company told the ministry.

RIL had outperformed the targets when it crossed 54 mmscmd from D1&D3 gas fields in March, before fall in pressure, water ingress and thinner-than-expected reservoirs resulted in a drop in production. Together with 7-8 mmscmd of gas from MA oilfield in the same licence area, total KG-D6 output was 61.5 mmscmd in March 2010 as against the targeted 40 mmscmd in 2009-10 fiscal.

The production, as per the government-approved field development plan, was to rise to 61.88 mmscmd from D1& D3 this year but it has fallen to 34.11 mmscmd in the week ending November 13. MA oilfield is producing 6.92 mmscmd, the report said.

The MA oilfield currently produced 12,636 barrels of crude oil per day.

The report said 13.31 mmscmd of the gas output is being sold to fertiliser plants and 24.44 mmscmd to power plants. The remaining 3.31 mmscmd is consumed by other sectors, including by the East-West pipeline that transports gas from the east coast to consumption centres in the west.

RIL projected an output of 40.80 mmscmd of gas during the rest of November.

As per the status report, out of the 22 wells planned in in Phase-I of D-1 and D-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.

Minister of State for Petroleum and Natural Gas RPN Singh had in August informed Parliament that output from KG-D6 was short of the 70.39 mmscmd (61.88 mmscmd from D1&D3 and 8.5 mmscmd from MA field) level envisaged by now as per the field development plan approved in 2006.

While RIL holds 60% interest in KG-D6, UK’s BP holds 30% and Niko Resources of Canada the remaining 10%.

RIL started natural gas production from the KG-D6 fields in April 1, 2009.
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It was not immediately known if he had indeed raised the issue which his company says is contrary to signed contract during the meeting which took place in the Parliament House.The company spokesperson did not immediately respond to calls seeking his comments.

The Petroleum ministry is currently calculating the amount of expenditure they will disallow as punishment for fall in output at KG-D6 fields.

Oil Secretary G C Chaturvedi had on Tuesday stated that the ministry will in 3-4 weeks take action to limit the amount of expenditure Reliance can recoup from its KG-D6 fields.
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RIL, which had bid for 6 out of the 34 areas offered for exploration under the ninth auction round of New Exploration Licensing Policy (NELP) earlier this year, was ranked number one for the Andaman deepsea blocks, AN-DWN-2010/3 and AN-DWN-2010/4, ahead of a consortia of ONGC and Oil India.

An Empowered Committee of Secretaries (ECS), which reviewed the bids recently, felt that 10.95 per cent profit share offered by RIL was less than benchmark 15 per cent and therefore was deemed very low, sources privy to the deliberations said. ECS in its recommendations, which would go to the Cabinet Committee on Economic Affairs (CCEA), opined that RIL should not be awarded these two blocks, they said.

The panel had gave the same opinion on ONGC’s 6.7 per cent profit share offer for two other Andaman Sea block – AN-DWN-2010/1 and AN-DWN-2010/2, where it was the sole bidder. It also wanted the bid by a consortium of ONGC-OIL and GAIL for deepsea block GS-DWN-2010/1 and that of ONGC-OIL-BPRL for Kerala-Konkan deepwater block KK-DWN-2010/1 also rejected as they offered very low profit share.

RIL lost out to lesser known companies on the four Gujarat and Rajasthan onland blocks it had bid for. Sources said ECS recommended award of only 14 out of the 33 blocks that had received bids. Of the 33 blocks, three in Mahanadi basin off the Orissa coast were to be shelved as they fell in Naval firing/exercise areas.

The panel recommended award of two shallow water and two onland blocks to consortia led by ONGC. State-owned OIL led consortia was adjudged winner for two onland blocks in the Assam-Arakan basin. Deep Energy walked away with two Cambay basin blocks while Focus Energy beat RIL to bag an area in Rajasthan.

The remaining five blocks were recommended for award to companies like Sankalp Oil and Natural Resources, Pratibha Oil and Natural Gas and Pan India Consultants. The government had offered eight deepsea blocks, seven shallow water areas and 19 onland blocks for bidding in NELP-IX. One shallow water block did not receive any bid at the close of bidding on March 28.

The ECS recommended rejection of single bids for 8 blocks where profit petroleum offered to the government ranged betwen 6.6 to 6.7 per cent. It sought assessment of networth of top bidder for three blocks in Cambay and Rajasthan before awarding them.
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The newspaper had reported that Reliance might make a financial investment or pick up a stake through a preferential offer by the carrier, which could be followed up by an open offer to public shareholders.

Citing an unnamed person close to the airline, the paper said Reliance was understood to have engaged a merchant banker to carry out due diligence of the carrier. Ravi Nedungadi, chief financial officer of UB Group, the airline’s parent, had said on Tuesday it had been approached by strategic investors.

An official with one of Kingfisher’s lenders had also said the carrier’s chairman, Vijay Mallya, was talking to a potential strategic investor. Kingfisher, which reported a September quarter loss of Rs 469 crore (us US $92 million) on Tuesday, cancelled scores of flights last week as it abruptly shut some routes. It has also been late paying salaries.
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The Dhirubhai-1 (D1) and 3 gas fields and the MA oilfield in the KG-DWN-98/3, or KG-D6, block in the Bay of Bengal produced about 41.68 mmscmd of gas in the week ending October 30, according to a production report filed by the operator (RIL) with the Oil Ministry.

The current output is a far cry from the 61.5 mmscmd level achieved in March last year and the production plan of over 70 mmscmd for 2011-12. The D1 & D3, fields produced 34.71 mmscmd and the remaining 6.97 mmscmd came from the MA oilfield during the week under review.

Reliance, the report said, has shut four wells due to high water ingress and sanding issues. Current output is from 14 wells out of the 18 wells drilled and completed so far in the D1 & D3 fields. The MA oilfield currently produces an average 13,071 barrels of crude oil per day.

The report said 14.06 mmscmd of the gas output is being sold to fertiliser plants and 24.29 mmscmd to power plants. The remaining 3.3 mmscmd is consumed by other sectors, including gas transported through the East-West pipeline from the East Coast to consumption centres in the West.

RIL had projected an output of 41.50 mmscmd of gas in the first week of November. 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.

Minister of State for Petroleum and Natural Gas RPN Singh had in August informed Parliament that output from KG-D6 was short of the 70.39 mmscmd level envisaged by now as per the field development plan approved in 2006. While RIL holds 60 per cent interest in KG-D6, UK’s BP holds 30 per cent and Niko Resources of Canada the remaining 10 per cent.

RIL started natural gas production from the KG-D6 fields in April 1, 2009.
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The Dhirubhai-34 discovery, known as the R-Series field, has gross in-place gas reserves of 1.64 trillion cubic feet, which, according to Reliance, can be brought into production in 4-5 years, sources privy to the development said.

The proposal to declare the field commercially viable — a prerequisite before investments can be made to bring it to production — is likely to come up before the KG-D6 block oversight committee this week.

The Management Committee for KG-D6 has one member each from Reliance and its two partners, BP Plc of the UK and Niko Resources of Canada, besides oil regulator DGH and the Petroleum Ministry.

Sources said the MC is likely to consider Declaration of Commerciality of four discoveries — Dhirubhai-29, 30, 31 and 34 — in the KG-DWN-98/3, or KG-D6, block. The DGH has raised objections on technical data for the D-29, 30 and 31 finds and has asked Reliance to withdraw the current proposal and resubmit it later. The MC will only consider the DoC for the D-34 field.

Reliance believes D-34 can produce 14.68 mmscmd of gas from 11 wells for eight years, they said, adding that the investment figures were only tentative, with a limited view of assessing commerciality of the find and a firm field development plan would be submitted after the DoC is approved.

It had previous submitted a FDP for four satellite fields surrounding the currently active Dhirubhai-1 and 3 (D1 and D3) fields in KG-D6 block. The proposal to invest US $1.529 billion for producing up to 10 mmscmd of gas from the Dhirubhai-2, 6, 19 and 22 (D-2, D-6, D-19 and D-22) fields in the KG-D6 block by 2016 is awaiting Oil Ministry approval.

Sources said Reliance believes D-29, 30, 31 and 34 hold gross in-place reserves of 2.2 trillion cubic feet and can produce a peak output of up to 20 mmscmd. But since the DGH has asked D-29, 30 and 31 to be disassociated, the D-34 reserves of 1.267 tcf are being considered.

The company has so far made 18 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 — the largest among the lot — were brought into production from April, 2009.

It had in July, 2008, submitted a FDP for nine satellite gas discoveries (D-2, D-4, D-6, D-7, D-8, D-16, D-19, D-22 and D-23) with an estimated capex of US $5.6 billion and reserves of 1,708 billion cubic feet (bcf).

Reliance later submitted an optimised development plan for the four satellite gas fields at the end of year 2009.

Reliance estimated 1,733 bcf of in-place gas reserves in the four finds, of which 626 bcf can be produced. However, the DGH trimmed down the estimates to 1,342 bcf and 617 bcf, respectively.
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The statement came in response to Western media reports that RIL was considering making a bid for Valero.
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