DGH refuses to approve RIL's $3.5 bn plan for NEC-25

RIL had in March-end submitted a USD 3.5 billion Integrated Field Development Plan for producing 10 million standard cubic meters per day of gas from the discoveries D-32, D-40, D-9 and D-10 in the Block NEC-OSN-97/2 (NEC-25) by mid-2019.

Updated: Jul 14, 2013, 13:30 PM IST

New Delhi: The Directorate General of Hydrocarbons (DGH) has refused to approve Reliance Industries' USD 3.5 billion plan for developing gas discoveries in block NEC-25, off the Odisha coast, as the company had not done the prescribed tests to confirm the finds.

RIL had in March-end submitted a USD 3.5 billion Integrated Field Development Plan for producing 10 million standard cubic meters per day of gas from the discoveries D-32, D-40, D-9 and D-10 in the Block NEC-OSN-97/2 (NEC-25) by mid-2019.

DGH, the nodal technical arm of Oil Ministry, has however refused to bring the development plan to block oversight panel, called the Management Committee, for approval disputing commerciality of D-32 and D-40 in absence of Drill Stem Tests (DSTs) to confirm the finds.

Sources with direct knowledge of the development said the issue has now been referred to the Oil Ministry as at least half a dozen discoveries in the now producing KG-D6 block of RIL and several of Oil and Natural Gas Corp (ONGC) had been declared commercial in past without a DST being done.

RIL and its partner BP plc of UK, they said, have stated that DGH should have insisted on DST being done when discoveries were being appraised some years back and not now when development plan has come up for approval.

They also feel DSTs are not just expensive proposition that will have bearing on government's profit take but also not conclusive tests to confirm production profile.

The sources said that on DGH insistence, RIL, operator of the block, has agreed to do DSTs but now the upstream nodal agency says the exploration phase of the block is over and so even those cannot be permitted.

The Ministry, which has been pushing for speedy development of discoveries to raise domestic output so that imports can be cut, will now decide if DGH is right in insisting on DST now and not at the time of confirmation appraisals done some years back.

DGH had recently rejected Declaration of Commerciality (DoC) of three discoveries in the flagging KG-D6 block on grounds of no separate DST being done.

The sources said DGH also refused to provide sanction for drilling of a well to carry out the requisite DST on finds in NEC-25 required to prove commerciality by claiming that the timeline for drilling such a well is over.

It rejected an RIL attempt to begin pre-development activities on the ground that these discoveries cannot be treated as "commercial" in the absence of sustainable production testing data.

According to RIL, D-32 and D-40 hold an inplace reserve of up to 663 billion cubic feet capable of producing 170 million standard cubic feet per day.

RIL holds 60 percent interest in the block, while British energy major BP and Canada's Niko Resources hold 30 percent and 10 percent, respectively.

Sources said RIL has argued that conventional short-term DST provided information on instantaneous well rates and did not provide sustainable well production rates.

It argued that sustainable field production levels could be established through an integrated approach (where seismic- MDT-log data is integrated) without carrying out individual DSTs. This approach has the remarkable ability to correctly forecast the well production rates, the company argued.

International operators like BP have used these techniques as the basis for reserve bookings and investment decisions in the Gulf of Mexico, Trinidad and other established hydrocarbon basins.

The company further argued that as the NEC block is located in simple sandstone reservoir and is dry in nature, there was no need for DSTs to establish sustainable production levels.

In this light, RIL opined that not carrying out DST should not come in the way of commercial evaluation of a gas discovery and an "integrated approach" was best suited for the block.

RIL has nine gas discoveries in the northern part of the NEC-25 block, and six in the southern area.

RIL and its partners had submitted development plan for the NEC-25 block after the government cleared it for future drilling activities by relaxing "No-Go" conditions put by defence establishment.

The NEC-25 block will be the second major block of RIL to start production after D6 Block in the Krishna-Godavari Basin.

Sources said NEC-25 development plans include the re- entry and completion of certain existing wells and the drilling of new wells, all connected via new flow-lines and other facilities into a new offshore central processing platform. The produced natural gas is expected to be transported onshore via a new pipeline.