<div>With workovers on the main fields nearing completion, output from the Krishna-Godavari (KG) basin is expected to increase to 15 million standard cubic metres per day (mmscmd) from 12 mmscmd. This should have Reliance Industries (RIL) cheering, but it is not. Reason: the delay in the gas price revision and the depleting Dhirubhai-1 and 3 gas fields in KG block D6 have been weighing on the growth prospects of its upstream business.</div><div> </div><div>Doubts persist about the government coming up with a new gas pricing formula by November 15 — its latest and second deadline — given that the issue has been politicised to a large extent. The previous government had recommended a price of $8.4 per million British thermal units (mBtu) that was sought by RIL. Besides, the new price, when it comes, is likely to be less than $8.4 per mBtu.</div><div> </div><div>The lack of a new gas pricing formula is also preventing RIL from taking a call to develop other discoveries such as R-series, satellite and MJ1. “RIL can decide on investments on new discoveries only if the price is viable. Already, we have unrecovered exploration expenses on account of failed discoveries,” says a RIL official, not wishing to be identified. RIL and its partners, BP and Niko Resources, claim to have spent $7.4 billion for the exploration and development of blocks that were later abandoned. “In case prices are fixed on the basis of cost of production, the additional cost of $7.4 billion will also need to be reimbursed,” RIL’s ‘Flame of Truth’ report quoted it as saying. <br /> </div><div>S.P. Tulsian, an independent analyst, however, says there is no need to increase the price of gas, as the contractor has recovered costs. “The later entrant, BP’s investment in these fields is a big mistake. They (RIL & BP) are trying to link cost recovery to the price, which is wrong,” he adds.</div><div> </div><div>RIL claims to have spent nearly $20 billion on exploration and production in India but recovered just around $8 billion. <br /> </div><div>RIL and its partners have stopped exploration activities in most of their 41 blocks. KG D6 is their main production block with 15 wells. “D1 was expected to produce 60 mmscmd at the point of time. Now, it seems that both the fields will be exhausted in three years. RIL pins its hope on other three lucrative fields in the KG basin,” says the official.<br /> </div><div>The gloom, however, is not shared by all. As per a UBS report, an increase in the gas price to $6.5-7.0 per mBtu from the current $4.2 will drive investments for developing R-series, MJ1 and commerciality approvals for satellite fields in KG-D6. UBS expects most issues to be resolved as the government is keen on increasing domestic production. For RIL then, the coming month will be crucial. </div><div> </div><div>(This story was published in BW | Businessworld Issue Dated 03-11-2014)</div>
