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Niko hints at D6 windfall for RIL

15 Feb 2010 Evaluate

Niko Resources, the Canadian oil explorer and 10% partner of Reliance Industries (RIL) in the gas-gushing D-6 block in the Krishna Godavari Basin, earned revenues of $67.63 million (Rs 320 crore) from sale of natural gas in India during the December quarter. Around 90% (worth an estimated Rs 288 crore) of the gas came from the D6 block, giving an estimate of around Rs 2,600 crore as RIL’s revenues from D6 block during the third quarter. According to the company, it was able to get operating profits (called ‘netback’ in oil industry jargon) of around 83% of the proceeds of the sale of oil and gas in India, after accounting for operating expenses and government levies.

 

The level of ‘profitability’ was around $3.66 per mmBtu in India, compared with just $1.36 in neighboring Bangladesh due to 80% higher sale price. Assuming a similar level of returns for RIL would indicate that D6 gas contributed around Rs 2,100-2,200 crore out of RIL’s total profits of Rs 4,008 crore during the quarter. However, gas profit may dip if the industry’s claim of a seven-year tax holiday on gas is denied by the courts.

 

Niko also said it has drilled three wells in the NEC-25 block in the Mahanadi basin, all of which turned out to be successful. The block is also expected to have around 9 trillion cubic feet of gas, comparable with the proven reserves in the currently producing D6 block. RIL had, more than two years ago, submitted a development plan for the block for approval, but the government is yet to give a go-ahead. Niko said the number of discoveries has increased to 11, from the 6 mentioned in the development plan.

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