RIL-Niko invest USD 5.98 bn in KG-D6: Deora

Last Updated: Monday, July 27, 2009 - 19:50

New Delhi: Reliance Industries and its
Canadian partner Niko Resources have invested USD 5.98 billion
in the oil and gas fields in the Krishna Godavari basin block
D6, Petroleum Minister Murli Deora said on Monday.

RIL-Niko plan to invest USD 8.8 billion to develop the
Dhirubhai-1 and 3 gas fields, first two of the 18 oil and gas
discoveries made in the block KG-DWN-98/3 or KG-D6.

"Reliance and Niko have invested USD 5.98 billion up to
March 2009 for the development of two major natural gas
discoveries and one crude oil discovery," he said.

KG-D6, he said, was currently producing about 31 million
standard cubic meters per day of gas, which accounts for 25
percent of the total natural gas production of the country.

Crude oil production from the block is around 13,500
barrels per day (0.67 million tons per annum), which is about
1.9 percent of the total crude oil production of the country.

"On achieving peak production of 80 mmscmd from this
block, natural gas production of the country would double
compared to the production during 2008-09," Deora said.

"Crude oil production from this block would reduce the
import bill to the extent of oil production from the block and
natural gas production would reduce the existing demand." he

Deora said in the Rajya Sabha the government has received
a payment of USD 0.51 million towards its share of profit
petroleum on commercial production of crude oil from KG-D6.

To a separate question, he said the government had
directed the Directorate General of Hydrocarbons to appoint an
independent and internationally renowned consultant to examine
the cost estimates.

Eminent consultant and reservoir engineer Dr P
Gopalakrishnan and Mustang Engineering of US, an
internationally reputed engineering consultancy company, have
submitted their reports. "Both the reports validate the cost
estimates made by RIL-Niko," he said.

Minister of State for Petroleum and Natural Gas Jitin
Prasada said an Empowered Group of Ministers (EGoM) had in
2007 approved a price formula for the KG-D6 gas.

Based on this formula the current gas price works out to
USD 4.20 per million British thermal unit at a crude price
greater or equal to USD 60 per barrel.

"The EGoM while approving the price formula took into
account the prices obtained by the producer/contractor
(RIL-Niko) from the market through a tendering process. It
also considered the interest of various stakeholders including
those in the power and fertilizer sectors," he said.

Prasada said gas prices are generally indexed to liquid
hydrocarbons such as crude oil and fuel oils.

"The international prices of these liquid fuels are
quoted normally in US dollars. Therefore, EGoM has approved a
gas price formula, which is denominated in US dollars for KG
basin gas," he said.

The exchange rate would be the monthly average of daily
mean of the buying and selling rates of exchange as quoted by
the State Bank of India.

The period of validity of the price formula is 5 years
from the date of commencement of supply of gas from the

"A fixed period has been prescribed because the price
formula/price is linked with crude oil price which is volatile
and a reasonable period of 5 years has been fixed to take
care of any further adjustments," he said.

Prasada said under the Production Sharing Contract (PSC),
the producer/contractor is required to discover an arms length
price to the benefit of parties to the contract.

"As per the PSC, the formula or basis on which the prices
shall be determined shall be approved by the government,"
Prasada said.

Bureau Report

First Published: Monday, July 27, 2009 - 19:50

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