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Reliance surrenders 14 blocks to govt

Last Updated: Monday, October 12, 2009 - 12:15

New Delhi: Reliance Industries has
surrendered 14 blocks back to the government after incurring
an expenditure of Rs 1,400 crore in unsuccessful exploration.

RIL had in the New Exploration Licensing Policy (NELP)
rounds won 45 blocks and of these it has surrendered 14 blocks
back to the government as it could not find commercially
recoverable oil and gas, sources close to the company said.

The company has invested over Rs 13,200 crore in
exploring oil and gas and their appraisal in the 45 blocks
but made commercial discoveries only in two blocks - KG-D6 in
Krishna Godavari basin and NEC-25 in Mahanadi basin.

Sources said RIL cannot recover the Rs 1,400 crore
expenditure it incurred on seismic surveys and drilling wells
in the 14 blocks and that would be treated as sunk or lost

Exploration and production is a highly risky business and
end results of the efforts are not known, and under the NELP
regime the operators can recover their investment from sale of
oil and gas only in blocks where they discover commercial
hydrocarbons and the same in the rest are simply lost.

In the KG-D6 block alone, RIL has committed about Rs
38,000 crore till date of which Rs 28,000 crore have been
already spent, they said.

RIL has put on production one oil find and two of the 18
gas discoveries in KG-D6. Its plans for nine satellite finds
in the block as well as six discoveries in NEC-25 are yet to
be approved.

Sources said the rate of return of for companies
investing in exploration/appraisal and development of a gas
field cannot be estimated with any degree of certainty.

The exploration and appraisal expenses which do not
result in a commercial discovery have to be written off
altogether unless a contractor is able to recover these from
the proceeds of sale of gas from the field or the block where
exploration/appraisal does lead to commercial discovery.

Explaining the nature of uncertain and risk laden E&P
business, they said even after reaching the stage of
commercial production, the behaviour of a producing gas field
and the recoverable reserves therein cannot be predicted to a
degree of certainty even with the help of latest technology.

There are no remedial measures available and there is
nothing that a contractor can do if the field does not produce
the gas at the rate or to the extent anticipated previously.

The costs and profits of E&P companies cannot be based on
individual blocks but has to be looked from a portfolio point
of view, where the cost of production by such portfolio
approach can be significantly higher, they added.

Bureau Report

First Published: Monday, October 12, 2009 - 12:15
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