DGH refuses to recognize RIL’s 3 KG gas discoveries

Reliance Industries Ltd. | Refineries | Oil & Gas | BSE: 500325 | NSE: RELIANCE

13 Jun 2011 Evaluate

Oil regulator DGH has refused to accredit three natural gas discoveries made by RIL at its KG-D6 block, where revival of the sagging output depends on production from new finds. The Directorate General of Hydrocarbons rejected D-30, D-31 and D-34 finds in the KG-DWN-98/3 or KG-D6 block as commercially exploitable discoveries on account of low reserves they may hold.

RIL, which has seen output from its main fields in the eastern offshore block fall by over 20% since March last year, wanted to tie-up the smaller discoveries together to a common facility to produce 5.7 million standard cubic metres of gas per day — double of what state owned ONGC's newest gas field, C-Series, produces.

But DGH rejected the proposal to declare the discoveries as commercial, saying that RIL and its Canadian partner Niko Resources had not provided results of tests done on individual wells to confirm the finds. It also turned down the indicative production profile made by RIL.

RIL, in its proposal, had estimated in-place reserves of 749 billion cubic feet in the three finds, which would have needed $877.2 million in capital expenditure to produce peak rate of 5.7 mscmd. RIL had in 2008-09 made four gas discoveries, D-29, D-30, D-31 and D-34, in the KG-D6 block. In July 2009, it submitted a proposal for declaring them as commercial, a step after which the company could have firmed up investment proposal for bringing the finds into production.

The oil regulator, in the first instance, rejected Declaration of Commerciality of all the four finds saying the gas volumes were too low to justify production. However, RIL persisted with its claims and DGH declared D-34 as commercial with an estimated peak production level of 14.68 mscmd over eight-year life of the field with $2.338 billion investment in development.

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