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Mumbai: Reliance Industries Ltd (RIL), which is sparring with the government over issues arising from declining production at its KG D6 gas block and its attempt to secure a higher price for the gas, has cut the volume of its proven gas reserves by 0.43 trillion cubic ft (tcf), or 6.63% of proven reserves at the beginning of fiscal 2012, according to its 2011-12 annual report that was put up on its website on Tuesday evening.

An RIL official, speaking on condition of anonymity, confirmed that most of the cut was on account of D6.

RIL’s annual report shows that at the beginning of fiscal 2012, it had around 6.55 tcf of proven gas reserves, reduced to 3.67 tcf at the end of the year, after the downward revision, accounting for transfer of an equity stake in its gas-producing assets to BP Plc (1.99 tcf), and actual production of around 0.46 tcf.

In August, RIL sold a 30% stake in 21 oil and gas blocks to London-based energy conglomerate BP for $7.2 billion (around 38,090 crore today). The British energy company is expected to help mitigate the challenge of falling output at D6 and is working with RIL to chalk out an integrated field development plan to improve gas production from the block.

Niraj Mansingka, an oil and gas sector analyst at Edelweiss Securities Ltd, said the reserves downgrade was “lower than expected" and hence positive news.

The fall in gas production has been a controversial and contentious issue. On 3 May, the oil ministry served notice on RIL, seeking to recover $1.46 billion in costs claimed by the company for falling output at D6. Under the production-sharing contract signed with the government, the company is entitled to deduct the cost incurred in developing the gas block from revenue while calculating the share of profit to be paid to the government.

The company has already recovered $5.28 billion towards such expenditure, but the government’s contention is that the cost recovery RIL is entitled to should be proportionate to the actual level of production. It told RIL that the company had wilfully failed to adhere to the work plan, a charge that the company refuted, citing technical complexities at the reservoir for lowerthan-expected gas output.

In his letter to shareholders, which is a part of the annual report, RIL chairman Mukesh Ambani said India acutely needed sizeable investments to develop its hydrocarbon reserves and “needs to do more in creating an equitable investment climate that recognizes the integral risk-reward paradigm of the upstream business".

“We need to take into consideration the fact that slowdown in these investments impacts the overall import bill for the nation as India continues to increase its dependence on imported LNG (liquefied natural gas), benefiting producers around the world," Ambani added.

RIL’s gas reserves estimate was also affected by the company’s reassessment of its portfolio and the relinquishment of five blocks during the last fiscal. It has “considered another five blocks as relinquished in its books and initiated the formal process of relinquishing these blocks", the RIL annual report said.

The annual report also showed that a new profit centre for RIL in fiscal 2012 was its US shale gas business that delivered an operating profit of $200 million on revenue of $250 million. However, Ambani noted in his letter that prevailing low gas prices in the US necessitated a “prudent approach towards production ramp-up with focus being on the more liquid-rich areas".

The company also said in the annual report that revenue from RIL’s retail business posted 25% year-on-year growth in 2011-12 to 7,599 crore, largely arising from strong demand at its existing stores.

aveek.d@livemint.com

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