The companys projections are somewhat more pessimistic than the Streets forecasts. Kotak institutional Equities has pencilled in a production level of 14 mmscmd for the current year after which it expects a drop, in the next two years, to 11mmscmd and 12mmscmd. Thereafter, the brokerage estimates a pick-up to 15 mmscmd in FY17 and 22 mmscmd in FY18.
While the discovery of the MJ1 well in May, 2013 should boost output, that could take time. These are new discoveries and will take at least five years to come into production. Before that, no substantial jump in production is expected and RIL will try to maintain the plateau through work-over activities, the RIL executive explained. The other producing field is MA, primarily crude oil bearing, but also producing marginal volumes of gas. Drilling in the D6 block resumed in March this year, after a four-year hiatus, following the governments decision to permit drilling in additional wells in already developed areas.
The RIL management had earlier indicated that steps were being taken that might help arrest in the fall in production at D1 and D3 by FY2015. However, in the absence of any major discovery coming on-stream in the next five years, production is expected to hover around the 10 mmscmd mark. D1 and D3, which got off the ground from Q1FY10, are the two most prolific fields in the D6 block. While they were expected to yield a 80 mmscmd by Q4FY12, production after hitting a high of 59 mmscmd in Q3FY10, has steadily slipped. The drop has been attributed to a misreading of the geographical set-up blocks. Since these are deep water blocks, several wells needed to be drilled so as to contain the pressure levels. However, the rapid ingress of water and sand into the wells hit production.
Morgan Stanley wrote in mid-October that while RIL had not provided any guidance on future volumes, it had commented that it was drilling two wells in the MA fields, with the first one to be completed by December-end. It will add approximately 4-5mmscmd of incremental gas, implying volumes can inch up to around 18mmscmd in F2015 compared with the 16mmscmd we currently assume, the brokerage wrote.
The company has been steadfast in saying it would not ramp up investments in exploration unless it was assured of a better remuneration for the gas than the current price of $4.2 per mmbtu. The Rangarajan Committee had suggested gas be priced based on a formula that would take into account prices at major global hubs, including Henry Hub and JCC (Japanese Crude Cocktail). At the time the CCEA cleared the proposal in June this year, the price as per the formula worked out to $6.83/ mmbtu. While the Management Committee has approved the R-Series development plan, RIL is cautious on making a capex commitment; the R-series field could produce approximately 12 mmscmd in 3 years after development begins. According to Kotak Equities, the price of gas is expected to go up steadily; from $8/mn BTU(british Thermal Unit) for FY2015 to $9/mn BTU for FY2016 and $9.5/mn BTU for FY2017 and $10/mn BTU from FY2018.