Hit by a worldwide shortage of rigs, Reliance Industries Ltd (RIL), India’s largest private oil exploration company, may have to go slow on its exploration programme.
The company, which announced an oil and gas find in the Cauvery Basin off the Tamil Nadu coast on Tuesday, said that it will have to alter its rig deployment strategy from exploration areas to production and development areas to meet its commitments.
P.M.S Prasad, president and CEO of the company’s petroleum business said, “We will have to re-deploy our rigs to prioritize production, development and exploration, in that order. We have eight rigs, which will not be sufficient for us to prioritize all three activities simultaneously.”
RIL has a commitment to begin production from its Krishna-Godavari (KG) basin gas fields from the second half of FY08 and is slated to produce 40 million standard cubic meters per day (mscmd) of gas. It also has exploration commitments in KG basin, Cauvery basin, Mahanadi basin, Gujarat-Saurashtra basin, the Cambay basin and Kerala-Konkan basin for the exploration blocks it has won under the new exploration licensing policy (Nelp).
The company has five rigs that are being rotated across these basins to complete its exploration and developement and production commitments. It is producing oil and gas from its pre-Nelp block on the Gujarat coast. RIL had contracted for the delivery of three additional rigs last year but they are expected to become available only by next year, Prasad said.
He pointed out that the cost of rig rentals and services have shot up three-fold, from $225,000 per day per rig to $750,000 per day per rig.
“We expect this delay to continue till for the next four years, till 2011, when 40 deep water rigs will come into the market,” he added. Prasad said that the government’s move to get the oil companies to share exploration rigs was welcome. “We are sitting down with the Director General of Hydrocarbons, ONGC and other oil explorers to work out the modalities of the rig sharing programme.
With rig contractors asking for long-term contracts up to five years, the programme will allow companies with smaller exploration commitments also to share rigs and complete their commitments.”
However, he clarified that the rig-sharing programme will apply only to new rigs and not to rigs already deployed.
RIL’s chief financial officer, Aloke Agarwal said that the company was also evaluating the possibility of acquiring stakes in rig manufacturers on an on-going basis. “We are constantly evaluating these possibilities but it is hard to say what we will do at this point,” Agarwal said.
Prasad also said that RIL got a two-year extension from the government in terms of its exploration commitments and hoped that the company would be able to manage without having to cede any of the blocks it has been awarded. Under the production sharing contracts signed by the company, it has to return blocks where it has not been able to carry out the minimum exploration work it has committed to.
“We hope that with the two-year extension that the government has given and the penalties that are built into the productions sharing contracts, we will not have to return any blocks,” Prasad said.
Prasad also announced that RIL was re-evaluating its Mahanadi gas find.
“We are drilling some more wells in the NEC 25 block on Mahanadi basin. We think that the find has more potential than we assumed so far. We are also filing our field development plan for the blocks in the next few weeks.” RIL has already spent around Rs850 crore in prospecting in the block.