Ambani Bros may Plan a Joint CBM Play

RIL & Rel Power have held initial talks to minimise costs by developing common infra for their blocks

RAJEEV JAYASWAL NEW DELHI 

    Mukesh Ambani's Reliance Industries and his younger brother Anil's Reliance Power have held initial talks to jointly develop their adjoining coal-bed methane (CBM) blocks, giving the estranged brothers another opportunity to join forces apart from the potential handshake in the telecom sector. 
Executives of RIL and Reliance Power confirmed that the two companies had initiated discussions a few months ago to optimise costs by developing common infrastructure at the contiguous CBM blocks in Madhya Pradesh. But talks were preliminary and so far they have not made significant headway, they said. Cash-rich energy major RIL, which has the skills to drill on land and the deep sea, is close to starting production from its Sohagpur CBM block in 2012-13 and is locked in a dispute with the oil ministry over CBM pricing. It does not want to talk about collaboration. "We will not offer any comments," a spokesman said. Reliance Power said it was open to cooperation. "The company always evaluates possibilities of cooperation with other organisations in the zone of our investment area for expeditious execution of our projects," it said in response to a specific query from ET on cooperation in CBM with RIL. 
The Ambani brothers, who fought an acrimonious, public battle after they divided the business empire, had issued a joint statement in May 2010 saying that they had cancelled non-compete arrangements between them and hoped to create "an overall environment of harmony, co-operation and collaboration between the two groups". 
ET had reported in November that Reliance Industries was likely to use the towers and fibre optic cables of Anil Ambani's telecom company to provide high-speed data services, although this would not involve any equity investment. Last month, the Ambani family got together in a public display of bonhomie on the birth anniversary of their father, but no business announcements followed. Industry officials said that compared to the telecommunication sector that has a grand, country-wide operation, CBM, which involves commercial extraction of methane gas trapped in coal deposits, is a new and relatively small business. Companies such as RIL have opposed the government's move to tightly control CBM sales and pricing. RIL has opposed the oil ministry's directive that the government will choose the customers with whom it can negotiate prices — a constraint that the company says is a contractual violation that restricts its ability to recover costs. Reliance wants to use the pricing formula prevalent in LNG trade, which the government has opposed. According to oil ministry officials, RIL has completed CBM exploration activities and is expected to start gas production from Sohagpur fields in 2012-13. The government has approved development plans for RIL's Sohagpur blocks, an official said. Reliance Power has drilled about a dozen exploration wells in Sohagpur-East and plans to enter the next phase of drilling test wells to finalise the field development programme. The peak gas production from the three blocks is estimated at around 7 million standard cubic meters per day (mmscmd), about one-fifth of current output from RIL's KG-D6 block. While RIL has two blocks — Sohagpur-West and Sohagpur-East — Reliance Power has one block, Sohagpur-North. 
RIL bagged the two Sohagpur blocks in the first CBM bidding round in 2002. The West block has an area of 500 sq km, while the east block is spread on 495 sq km. RIL holds 100% interest in the two blocks. The government had awarded Sohagpur-North block to the Reliance Power-led consortium in September 2006 under the third bidding round. Geopetrol International is its partner in the project with 10% stake in the block, with an area of 609 sq km. India has the world's fourth-largest coal reserves, which are estimated to hold about 92 trillion cubic feet of coal-bed methane. The government has awarded over 30 CBM blocks and Great Eastern Energy-operated Raniganj block is commercially producing CBM.