BackRIL partner to defer investments in KG basin as uncertainty looms
Niko keeps planned investments on hold, says newer discoveries by partners too may not see further investments
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Mumbai: A lack of clarity on gas prices in India has prompted Canada’s Niko Resources Ltd, a partner in the D6 block of Reliance Industries Ltd (RIL), to keep planned investments on hold, in a continuation of its year-old stand.
The move comes within two weeks of UK-based Hardy Oil and Gas Plc saying it will quit India if its oil and gas assets do not see any development.
“The development of these discoveries is dependent on the future long-term price outlook for gas sales from these projects and the significant uncertainty in this outlook could mean that the development of these reserves could be deferred and/or material reductions in the company’s reported reserves or future net revenues could result," Niko said in its annual statement released on Monday.
Niko Resources owns 10% in the D6 block—which contains the flagging D1 and D3 gas fields—located in the Krishna-Godavari basin in the Bay of Bengal, while UK-based BP Plc holds 30%. RIL is the operator of the block with a 60% stake. The partners together hold a stake in another block, NEC-25, located in the Mahanadi basin.
In the absence of clarity on pricing, newer discoveries made by its partners too may not see further investments, Niko said.
In its domestic natural gas pricing guidelines issued on 18 October, the government said that new gas discoveries will fetch a premium, if these discoveries are located in deep waters. However, eight months hence, there is no announcement on which blocks will get the premium and how much. This has irked private energy explorers operating in India.
“Applicability of the premium to existing undeveloped discoveries in the D6 and NEC-25 blocks, such as the discoveries included in the approved plans of development for the R-Cluster and Satellite Areas, remains to be clarified. The development of these discoveries is dependent on the future economic viability of the required investments," the Niko statement said.
R-Cluster and Satellites are the newer discoveries in the D6 field and have the potential to produce up to 20 million metric standard cu. m per day (mmscmd) of gas. As of now, they do not produce any gas. The D6 block is currently producing 11 mmscmd of gas against 80 mmscmd projected in 2010.
RIL and BP have always claimed that the energy sector can be developed only if companies are allowed to charge market-linked rates.
RIL chairman Mukesh Ambani, during his annual shareholders’ meeting on 17 June, said that investments in the oil and gas sector can come only if the government readily resolves legacy issues on pricing and policy.
“It is important to highlight that there is value yet to be unlocked from 5-6 tcf (trillion cu. ft) of resources discovered at various stages of development, appraisal and approval… In this context, it is important to follow the intent, purpose and commitment of the NELP (New Exploration Licensing Policy) Policy i.e. maximizing E&P (exploration and production) activities, getting the risk-reward balance right, and providing marketing and pricing freedom. This will provide predictability and certainty to the investors. We are hopeful that the government will address this policy issue in the larger interest of attracting investments in the critical E&P business," said Ambani during the meeting.
While the United Progressive Alliance government had promised a near doubling of the natural gas prices in India from $4.2 per million metric British thermal units (mmBtu) to 8.4 per mmBtu from April 2014, the new National Democratic Alliance government deferred the price hike. In October, it fixed natural gas prices under a specific formula for a period of six months, which was relatively lower.
The current gas price in India stands at $4.66 per mmBtu and is applicable till the end of September 2015.
“Unless you give a price which is at least little closer to imported liquefied natural gas in India, we will not see any further investments in exploration and production in India besides state-owned companies," said an analyst with an international brokerage during an interaction with Mint in May.
He said the government will fail to ring in any foreign investment in the oil and gas sector in India in the near future as the gas prices in India are really low.
He did not want to be named due to his company policy.
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