Mumbai: Even as it fights a legal battle over its natural gas fields in the Krishna- Godavari (KG) basin, Reliance Industries Ltd (RIL), India’s most valuable company, could be sitting on a treasure trove of natural gas and oil reserves in four other exploration sites, according to Macquarie Research.
That view, contained in a December report by Macquarie, is echoed by sector analysts and RIL’s minority partners in the blocks such as Hardy Oil and Gas Plc. and Niko Resources Ltd.
New horizons: A view of Reliance Industries’ refinery at Jamnagar. As refining margins shrink and demand for petrochemical products declines, natural gas may be the largest revenue source for the company. AFP
“Our forensics suggest that RIL has at least five other basins that could replicate KG-D6,” Macquarie analysts Jal Irani and Scott Weaver wrote. KG-D6 refers to the company’s proven reserves in the D6 block of the KG basin in the Bay of Bengal.
These blocks, however, are currently in various stages of exploration or development. Experts have cautioned that while these are “promising” and could boost RIL’s financials, a clearer picture will emerge after more wells are drilled. RIL is the principal operator in these blocks. It also has the largest acreage on this coast and declared 41 discoveries so far.
The MN-D4 block in the Mahanadi basin, KG-D9 and KG-D3 in the KG basin and the CY-D5 in the Cauvery basin are being tipped as the next big sources of gas with expected reserves of about 70 trillion cubic ft (tcf), according to projections. Additionally, the Mahanadi block NEC-25 is expected to hold about 8.3tcf, while KG-D4 could potentially be the largest oil find off the eastern coast, likely bigger than the D6 block.
RIL did not respond to an emailed questionnaire.
As refining margins shrink and demand for petrochemical products declines, natural gas from KG-D6 is expected to be the largest revenue source for the Mukesh Ambani-owned company. In such as scenario, a few assets such as KG-D6 could only help RIL, but experts are curbing their enthusiasm until drilling begins.
That caution stems from the fact that converting prospects won’t be easy. “People are not giving too much attention to these right now. They are giving extant valuation only to revenue streams with clear-cut visibility like KG-D6,” said a sector analyst with a domestic brokerage, adding that RIL could face a shortage of deep-sea rigs as well as a funding crunch to develop these blocks. Currently, all its deep-sea rigs and crew are deployed in KG-D6.
Another hitch is that the natural gas market in India is still nascent. “Once KG-D6 gas comes out and gas market begins to develop in India, we will have a better understanding of how significant these discoveries are and how they should be valued,” said an analyst with a foreign brokerage, who did not want to be identified as he is not allowed to speak to the media.
Gas from D6 could go up to 80 million standard cu. m a day (mscmd) at its peak, and is valued at $27-30 billion (Rs1.31-1.46 trillion). Of this, $6 billion could accrue to RIL shareholders, the same analyst said.
However, production and sale from KG-D6 depends on the outcome of a lawsuit being heard in the Bombay high court, where Reliance Natural Resources Ltd, owned by estranged brother Anil Ambani, is claiming 28mscmd of gas at a cheaper rate for 17 years than what RIL has proposed.
The D6 block has 40tcf of in-place reserves, Edward S. Sampson, chief executive of Niko Resources, had told analysts in October. Niko has a 10% stake in this block and 15% in MN-D4. A Macquarie report dated 17 September 2007 had said that MN-D4 “may even dwarf KG-D6”. Niko did not respond to a questionnaire emailed on Monday.
Hardy Oil and Gas, a 10% partner of RIL for KG-D9 and KG-D3, is also optimistic about the new sites. In an April presentation to investors, the firm said KG-D9 could have as much as 45tcf of gas in a “best estimate” scenario, with a 15% chance of success.