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RIL’s new gas finds not viable at $4.2/mmBtu price, says DGH

"Considering the production profile drawn up by the DGH and the cost estimates and project schedule as provided by operator (RIL), the project yields a negative Net Present Value of $239 million at the gas price of $4.2 per mmBtu," the DGH told the oil ministry in a note seeking approval for the development plan

New Delhi: Oil regulator Directorate General of Hydrocarbons (DGH) has said that Reliance Industries' (RIL) newer natural gas finds in the eastern offshore KG-D6 block are not economically viable at the government-stipulated price of $4.205 per million metric British thermal units (mmBtu), reports PTI.

Reliance had in December 2009 submitted to the regulator an optimised development plan for four satellite gas fields around the currently producing Dhirubhai-1 and 3 gas fields in the KG-DWN-98/3, or KG-D6, block. It proposed to invest $1.529 billion in producing up to 10 million metric standard cubic metres per day (mmscmd) from the four discoveries in five years' time.

"Considering the production profile (drawn up by the DGH) and the cost estimates and project schedule as provided by operator (Reliance), the project yields a negative Net Present Value of $239 million at the gas price of $4.2 per mmBtu," the DGH told the oil ministry in a note seeking approval for the development plan.

Reliance projected first gas from the Dhirubhai-2, 6, 19 and 22 (D-2, D-6, D-19 and D-22) fields in 2016.

The DGH said if royalty is excluded from project cost and capital expenditure is phased over a period of two years before the date of first gas extraction, the project becomes marginally viable.

"The projected total revenue and Net Present Value (NPV) of the cash flow at a 10% discount factor are $2,360 million and $33 million, respectively. The project becomes marginally economically viable," it said.

But royalty in any case has to be paid to the government.

Reliance had in 2007 proposed a price of $4.33 per mmBtu for gas from KG-D6. The government however tweaked the formula and fixed the sale price at $4.205 per mmBtu for the first five years of production.

The DGH has evaluated the new finds in KG-D6 at the government-approved price and did not consider a higher rate that may be fixed in 2014, when the price comes up for review.

Reliance has so far made 18 gas discoveries in the KG-D6 block. It had in July 2008 submitted a field development plan for nine satellite gas discoveries (D-2, D-4, D-6, D-7, D-8, D-16, D-19, D-22 and D-23) with an estimated capex of $5.6 billion and reserves of 1,708 billion cubic feet (BCF).

The DGH, the paper said, carried out techno-economic feasibility studies at a gas price of $4.2 per mmBtu and projected total revenue and NPV at a 10% discount factor at $6.52 billion and negative $2.51 billion, respectively.

The regulator then told Reliance that the development plan needs to be optimised. Reliance submitted the optimised development plan for the four satellite gas fields in end-2009.

Reliance estimated 1,733 BCF of in-place gas reserves in the four finds, of which 626 BCF can be produced. However, the DGH trimmed down the estimates to 1,342 BCF and 617 BCF, respectively.

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