Monday, September 22, 2008

Reliance's KG oil starts flowing; gas to follow in 2009



Mumbai: Six years after it discovered gas in deep sea off the Andhra coast, Reliance Industries (RIL) on Sunday formally announced the commencement of production from its famous Krishna Godavari D6 upstream assets. The first-of-its-kind production from a deepwater field in India commenced on September 17 and comes 40 years after Bombay High was discovered by ONGC. Initially, RIL will produce 5,000 barrels of crude a day, which will later rise to the peak level of 5.5 lakh barrels of oil equivalent per day (boepd). At this level, it could save the country nearly $20 billion in foreign exchange every year.

“On September 17, the first oil flowed from the KG basin. What was discovered in 2002 has now come on stream. We have started with the production of 5,000 barrels of oil equivalent (BOE) per day. This will reach a peak level of 5.5 lakh barrels of oil equivalent. This will increase India's current oil and gas production by 40%,” RIL chairman Mukesh Ambani told mediapersons. The peak level is expected to be achieved over 6-8 quarters.

The much-anticipated gas production from KG basin is expected to commence from the first quarter of next year, Mr Ambani said. Mr Ambani described the development as “historic and a milestone in RIL's emergence as a major upstream energy player”.

But this is just the prelude: “It marks production from just one field that is part of a larger discovery domain. We can now confidently look forward to production from a series of other fields,” he added. The production started 27 months after the discovery, again a major achievement.

The otherwise-reclusive chairman of the country’s largest private sector company (this was his first media briefing after the split in the Reliance empire three years ago) said that oil and gas production from 8,000 ft below the ocean bed would scale up the country's indigenous production by over 40% in the next 18 months and thereby enhance the per-capita energy consumption from the existing 2.61 boepd compared with the world average of 13.12 boepd. This will improve quality of life as well, he said. The expected production of 5.5 lakh barrels a day can feed cooking gas to 10-12 crore households. It enables RIL to create “unprecedented value” for its shareholders, he added.

This would make RIL one of the top five oil and gas deepwater producers in the world. “This is a considerable achievement given that we had no background in deepwater oil and gas extraction,” Mr Ambani said. The KG basin D6 has a potential of 2.5 billion barrels of oil equivalent, said Mr Ambani. RIL plans to have reserves of 10 billion barrels of oil equivalent in place by 2010.

True to form, Mr Ambani went far beyond the news of the day and proceeded to enunciate a vision of how, in his view, natural gas could transform the lives of India's masses. “When we discovered natural gas in 2002, papa's (Dhirubhai Ambani) immediate thought was how it could transform India,” the RIL chairman said. Natural gas could be used in a wide range of purposes.

“India's 50 million two-wheelers, three-wheelers, even small cars could be powered by gas. The technologies to achieve this do exist. Gas could also help generate distributed power through small power plants in housing estates, malls and factories... Previously, gas was considered the less valuable among oil and gas, but that will change. “Gas,” he reminded, “is an eco-friendly fuel.”

The eastern coast of India, Mr Ambani predicted, could turn out be India's own Gulf of Mexico. “India's east coast, consisting of Krishna Godavari, Cauvery and Mahanadi basin, has high potential. Just as the US has the Gulf of Mexico, this is our own version of that,” he said. The geology of the region indicated a high potential for both petroleum products -gas and oil - though more of the former.

The RIL chairman ruled out any out-of-court settlement in the ongoing legal proceedings between RIL and Reliance Natural Resources (RNRL), the latter part of the Anil Dhirubhai Ambani Group. “There is nothing to settle. Gas cannot be stored. There is no power plant,” Mr Ambani said. The Bombay High Court has barred RIL from entering into long-term contracts.

As production ramps up, the company will eventually earn one-fourth of its profit from oil and gas production, Mr Ambani said. The gas will be sold at $4.2 per mmbtu (or $26 per barrel). RIL is also expected to begin production of crude from the new refinery currently being built in Jamnagar. This refinery, along with RIL’s existing refinery capacity of 6.6 lakh barrel a day in Gujarat makes it the world's biggest.

RIL holds 90% participating interest in the country's hydrocarbon-rich KG basin, while Niko Resources holds 10%. Reliance is the largest exploration acreage holder in the country. Its E&P assets consist of 54 blocks spanning eight countries. With 42 discoveries to date, Ril has an exploration success ratio of over 60%, which is significantly higher than global averages.

In the newly-built Reliance Corporate Park on the outskirts of Mumbai, Mr Ambani, along with wife Nita, dedicated the first produced bottle of oil to the company's founder chairman and his father, late Dhirubhai before kickstarting a packed media address. The production from this field - which is named after the Reliance patriarch - vindicates Dhirubhai's faith in India's endowment of hydrocarbon resources, he said. “From him, I learnt that the challenge of value creation lies in building real assets,” Mr Ambani added. - ibef

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