Production at KG-D6 to be ramped up by 15 mmscmd in three months

Written by Promit Mukherjee | Mumbai | Updated: Jan 20 2014, 10:42am hrs
After a gap of over three years, Reliance Industries (RIL) will see a 20% jump in production from its flagging D6 block in the Krishna-Godavari Basin (KG-D6) before the end of the current quarter, reports Promit Mukherjee in Mumbai. This essentially means the production from the block will go up to 15 million metric standard cubic metres per day (mmscmd) of gas by the end of FY14 from the third-quarter average of 12.44 mmscmd, the first quarterly rise in three years after production started tumbling from Q3FY11. During Q3FY11, RIL clocked a production rate of 59 mmscmd, its highest so far. This incremental production will be achieved after it stabilises the MA-8H well that was brought into production in early January.

With the MA-8 well hook up, currently we have added 1 mmscmd so far in January and it will go up to 2.5 mmscmd once the well stabilises, said Alok Agarwal, chief financial officer, RIL.

While he did not mention a timeline for the complete ramp-up of the well, Agarwal said the production will be definitely higher than the last quarter.

Analysts said that the company informed them during a post-results conference call that it will be able to exit the year with a production of 15 mmscmd driven largely by the new well MA-8 and other side-track wells such as MA-6H.

RIL expects KG-D6 production to recover to 15mmscmd over the next quarter end and sustain at similar levels, said Edelweiss analyst Niraj Mansingka in a report published after the results.

Analysts expect the production run rate to sustain at levels of 14-15 mmscmd till FY18 when the R-cluster or the R-series a clutch of fields bunched under the name D34 comes into production.

However, Mansingka feels the guidance for R-series is delayed by a year. R-series commencement guidance of FY18 is slightly disappointing (we had assumed FY17), though there will be no NPV (net present value) impact, he pointed out in the report.

The FDP or the field development plan of the R-series field was approved in August 2013 under which the company and its partners in the D6 block British Petroleum (30%) and Niko Resources (10%) will be investing $3.2 billion and will be drilling eight development wells with dedicated evacuation pipelines.

While the first gas is expected to come in FY18, so far there is no exact guidance for the fields to reach a peak production which is expected to be 12 mmscmd.

However, an RIL official recently said that it is doubtful whether the R-Series gas will be viable or not under the current regime of gas pricing, which pegs the current price of gas at close to $8 per million metric British thermal units (mmBtu) as per the Rangarajan committee formula.

The formula takes into consideration the weighted price of benchmark gas in the US and the UK and the price of imported LNG (liquefied natural gas) in India and Japan and a lag of a quarter. The price is provisional every quarter.

However, RILs exploration and production (E&P) portfolio which contributes almost 10% to the companys operating profit currently is entering a better territory finally as with increased gas price and improving operations of its shale gas in US the company will see some value unlock, said Gagan Dixit, an analyst with brokerage Quant.

We expect the operating profit of shale gas to grow at over 30% for the next several quarters as peak drilling activity continues, he said.

Mansingka in his report said shale gas continued its high growth with production surging 18% quarter-on-quarter to 13.2mmscmd due to hook up of wells in Pioneer joint venture. Shale operating profit increased to $174 million ($127 million in Q2FY14).