Reliance, BP to invest Rs40,000 crore in KG basin
Mumbai: Reliance Industries Ltd (RIL) and BP Plc. will invest a combined Rs40,000 crore in the D6 gas field in the Krishna-Godavari (KG) basin, off India’s eastern coast, to boost production over the next 3-5 years, the two companies said on Thursday.
The investment in the deep water gas field is expected to boost production by as much as five-fold, the companies said.
The announcement was made by RIL chairman and managing director Mukesh Ambani and BP’s group chief executive officer Bob Dudley at a press conference in New Delhi, after they met Prime Minister Narendra Modi and oil minister Dharmendra Pradhan earlier in the day.
The companies also decided to expand their partnership in areas “including differentiated fuels, mobility and advanced low carbon energy solutions”.
The announcement comes amid a changing global energy landscape. Conventional energy companies are expanding their portfolio to include clean energy projects.
RIL and BP are partners in the KG-D6 block which currently produces around 7 million standard cubic metres of gas per day. While RIL holds a 60% stake in the gas block, BP owns 30%. Canada-based Niko Resources Ltd owns the rest.
“This is the first of three planned projects in Block KG-D6 that are expected to be developed in an integrated manner, producing from about 3 trillion cubic feet of discovered gas resources,” the companies said in a joint statement.
“RIL and BP plan to submit development plans for the next two projects for government approval before the end of 2017,” the statement added. “Development of the three projects, with total investment of c. INR 40,000 crore ($6 billion), is expected to bring a total c. 30-35 million cubic metres (1 billion cubic feet) of gas a day new domestic gas production onstream, phased over 2020-2022.”
The field began gas production in April 2009 and was to hit a peak output of 69.43 million standard cubic metres per day in March 2010. However, water and sand ingress forced the closure of some wells, leading to a drop in production.
RIL and its partners are embroiled in multiple arbitrations against the government, including for disallowing cost recovery as a penalty for gas output not meeting stipulated targets; deferment of natural gas price hike due to RIL from 1 April 2014; and for demanding $1.55 billion compensation from RIL and its partners for producing gas that belonged to Oil and Natural Gas Corp. Ltd’s field in the KG basin.
“Although the plan to increase gas production seems positive from a long-term perspective, our view is RIL-BP’s investment plans would be contingent to revision in domestic gas prices as development of deep water fields seems difficult at current gas price of $5.56/mmbtu for deep water blocks,” said Abhijeet Bora, an analyst at brokerage Sharekhan Ltd. Mmbtu refers to million British Thermal Units.
RIL, which had earlier maintained that further development of RIL’s east coast fields—R-series, MJ (D55) and D29/D30—will be contingent on resolution of arbitration cases and approvals, said on Thursday that it will follow legal course for bringing the arbitrary proceedings to conclusion.
“We don’t see pending arbitration hampering our new investments,” said Ambani.
India, the world’s third-largest oil importer, wants to gradually move to a gas-based economy from a predominantly oil-based one. India consumes over 5 billion cubic feet of natural gas a day and aspires to double gas consumption by 2022 through schemes such as the Pradhan Mantri Ujjwala Yojana, which gives subsidized cooking gas to financially weaker sections.
In response to a question, Dudley said BP expects crude oil price to be within the price range of $50-55 per barrel during this year and the next.
BP and RIL are also looking at opportunities in businesses as diverse as fuel retailing and solar power projects.