RIL prunes KG D6 budget by $3bn

Remaining Reserves In Fields Don't Justify Drilling More Wells, Says Co

TNN & AGENCIES 

New Delhi: Reliance Industries (RIL) has slashed its budget for developing the three main oil- and gas-producing areas in its showcase Andhra offshore field by $3 billion, citing "unexpected" fall in reserves. 
    In a revised field development plan, the company has pared its investment to $5.9 billion from the $8.8 billion it had proposed in 2006 and which was subsequently approved by the government. 
    RIL has already pumped $5.6 billion into developing the Dhirubhai-1 and Dhirubhai-3 fields, which produce gas, and plans to invest only $235 million more to raise gas pressure. 
    It has scaled down the investment plan by $276 million to $1.96 billion for the D26-MA field that produces oil and gas. Sources said the revised plan has given the argument that the remaining reserves in the fields do not justify drilling of any more wells. 
    But the reduction in the budget comes at a time when gas output from the field has fallen to less-than-half of the 60 mcmd (million cubic metres per day) achieved after production started in 2009 and the company is embroiled in a dispute with the oil ministry over ways to ramp up production — whether to drill more wells or not. 
    The drastic fall has forced the government to cut supplies to consumers and grapple with a clamour for fuel from starved power and fertilizer plants. Once the ministry was stung by the federal auditor's adverse report on the field, it slapped a Rs 7,000-crore penalty on Reliance in May for failing to achieve the output target on the basis of which the investment budget was approved, even thought the company had served arbitration notice in November 2011. 
    In its notice, the ministry said the company would not be allowed to recover from sale of gas the cost of its investments worth $457 million made in the field in 2010-11 and $778 million in 2011-12. 
    Reliance has so far invested $5.6 billion and recovered nearly all of it. It has blamed changes in geological factors and the frontier nature of the field for the sharp drop in output. 
    Reliance has argued that the field has not behaved as predicted and so indiscriminate drilling would be a big drain on cost. The budget has been pruned on the projection that only 3 tcf (trillion cubic feet) of gas reserves remain in D-1 and D-3 instead of over the 10 tcf estimated in the 2006 plan. It estimates that more gas reserves lie in the satellite fields around D-1 and D-3 and should be developed quickly to ramp up production to 30 mcmd of additional gas. 
REALITY CHECK 
    Mukesh Ambani-led RIL has scaled down capital expediture in KG fields to 
$5.9 billion from $8.8 billion 
    RIL has already spent $5.6 billion on D1&D3 fields, which began producing gas in April 2009, and plans to further invest $235 million in raising gas compression capacity 
    In 2006, it had proposed to drill a total of 31 wells capable of producing 80 mmcmd of gas by 2012. However, 
RIL has so far drilled only 22 wells in D1&D3. Out of these only 18 are in production