1. Gas reserves cut adds a new twist to Reliance Industries-ONGC dispute

Gas reserves cut adds a new twist to Reliance Industries-ONGC dispute

A sharp cut in the estimates of initial gas reserves, and hence recoverable reserves by consultants DeGolyer and MacNaughthon (D&M) gives a new twist to the ongoing ONGC and Reliance Industries (RIL) dispute.

By: | New Delhi | Updated: December 2, 2015 10:53 AM
ONGC

Petroleum ministry will have to examine whether the DoC submitted by ONGC pertained to the entire fields or just to the part connected to the Reliance Industries reservoir in its 98/3 area. (Reuters)

A sharp cut in the estimates of initial gas reserves, and hence recoverable reserves by consultants DeGolyer and MacNaughthon (D&M) gives a new twist to the ongoing ONGC and Reliance Industries (RIL) dispute. According to the draft D&M report, confirmed by the final report, a total of 0.4 trillion cubic feet (11.1 billion cubic metres) of gas has migrated from ONGC’s G4PML and D1/E1 discoveries in the 98/2 area.

Whether RIL will pay ONGC the market price of this gas — this has now to be determined by the petroleum ministry — will depend upon a host of factors. Based on the D&M study, it would appear ONGC would have made losses if it had developed the fields since it would have had to invest several billions to take out the gas.

According to the original declaration of commerciality (DoC) submitted by ONGC, these fields had 1.7 tcf of gas in place, of which 1.2 tcf could be recovered — ONGC had said the fields would be viable at a price of $6 per million metric British thermal units (mmBtu). The D&M report, however, puts the gas reserves at 0.9 tcf and recoverable reserves — based on ONGC’s gas that RIL is taking out from its reservoirs — at 0.5 tcf. If you take the same ratio of recoverable reserves to in-place reserves as in ONGC’s DoC, it suggests ONGC could have recovered 0.6 tcf.

Naturally, with much lower gas coming out, the $6 per mmBtu mentioned by ONGC in its DoC would no longer be viable. In any case, right now, the government allows much less than that.

ONGC sources contest this explanation and say that the D&M reserves estimate pertain to only the part of their reservoir that is connected to the RIL reservoir, not the entire block. As a result, they argue, the fields would have been commercially viable had RIL not extracted 0.3 tcf of gas from them.

This suggests that the petroleum ministry will have to examine whether the DoC submitted by ONGC pertained to the entire fields or just to the part connected to the RIL reservoir in its 98/3 area.

A similar sharp reduction in initial reserves and likely gas production has been made for RIL as well. While RIL’s initial estimate of gas was 7 tcf (198.2 bcm) and recoverable reserves at 5.6 tcf, it had hiked this to 12 tcf with recoverable reserves of 10-11 tcf. In 2012, however, RIL dramatically reduced its estimate of recoverable gas to 2.9 tcf — at that point, it was charged that RIL was hoarding gas till such time the government doubled prices as per the Rangarajan formula.

Gr4

According to D&M, however, RIL’s initial gas in place was 2.9 tcf — this is significantly lower than both RIL’s first estimate and a fraction of its later estimate. While that has implications for how RIL did its estimates as well as the Directorate General of Hydrocarbons’ process which validated what RIL had said, D&M estimates the RIL field has another 183 bcm (0.183 tcf) of gas left plus another 64 bcf of ONGC’s gas that has migrated into the RIL area.

Whether this will help RIL in its arbitration case against the government is another matter. The government has withheld $2.5 billion of payments to RIL so far on the grounds that it had invested way too much in relation to the amount of gas that was in the grounds. RIL, however, argues that costs incurred are not related to the amount of gas in the field but on the basis of the estimated reserves — according to RIL, under the cost-recovery formula in place, it has to be compensated for its investments.

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