Reliance Industries (RIL) on Monday indicated it would be willing to invest as much as $16 billion, over the next five years, to boost production of gas at its fields. With this spend, RIL hopes to unlock anywhere between 3-4 trillion cubic feet (tcf) of gas.
However, RIL officials made it clear that exploration and production would not be viable at $6.83 per mmbtu, (price for April-June 2013 based on the Rangarajan formula) approved by the Cabinet Committee on Economic Affairs (CCEA). RIL believes commercial production is remunerative at a price closer to $8-10.
In late June, the CCEA decided to link the price of domestic gas to a market-based formula suggested by the Rangarajan committee, from April 2014. Based on the formula, the price of gas is expected to be $6.83 compared with the current price of $4.2.
RIL?s investment outlay pencils in $6 billion on operating expenses at the existing fields and $3.5 billion for the cost of capital, at an interest rate of 13%. Approximately $3.5 billion will be spent on RIL’s R Series fields while a spend of $2.5 billion has been earmarked for the nine satellite fields.
The output of gas from RIL?s D1 and D3 fields has fallen to just over 14 mmscmd from a peak of 69.43 million standard cubic metres per day (mmscmd) in March 2010 with the steep fall attributed to geological complexities, a natural decline in the fields and higher-than-envisaged water ingress. Of the 18 gas fields that RIL has discovered, production has commenced only in the D1 and D3 fields in the Krishna-Godavari D6 block, off the east coast of India.
The output is way below the targetted 80 mmscmd and consequently, the shortage since 2009-10 is now as much as 122.77 mmscmd. RIL operates KG-D6 with a 60% stake together with BP, which owns 30% and NIKO which has the remaining 10%; the company will spend $500 million to maintain the two depleting D1 and D3 fields.
Revenues from RIL?s oil and gas business fell to Rs 8,280 crore in FY13 from Rs 12,898 crore, a fall of 46%; in FY11, revenues were Rs 17,250 crore. Ebit (earnings before interest and tax) margins dropped to 34.9% in FY13 from 40.7% in FY12; Ebit margins in Q4FY13 were just 28.8%. The total production of gas at RIL’s KG D6 block fell to 336 bcf in FY13 from 450 bcf in FY12, a fall of 39%.
RIL has submitted the field development plan for the R series fields to the director general for hydrocarbons (DGH) and will utilise the existing infrastructure at the D1 and D3 fields to develop these; the nine smaller satellite fields will be developed as part of an integrated project.
Prior to the developing the D1 and D3 fields, RIL had invested about $3.5 billion on 25 fields. So far, RIL has far been able to recover about $9.2 billion from the government in accordance with the cost recovery nature of the production sharing contract signed with the government.
