The friction between Reliance Industries (RIL) and the government seems to be easing. The government-led management committee (MC) approved field development investments for RIL’s Krishna Godavari (KG) D6 block for three years, but with riders. The MC approved the pending budget for the past two financial years and gave consent to $1.06-billion expenditure for 2012-13. “Whatever the contractor needs technically and administratively to raise production, we will do. Approvals will be given subject to conditions,” petroleum minister S. Jaipal Reddy said.The grave power situation in the country and the recent collapse of the transmission grids may have prompted the government to soften its stand on KG-D6. The government needs fossil fuel from all sources to tackle the shortages. But allowing the RIL investment with riders indicates the government’s eagerness to avoid flak from watchdogs such as the CAG.But will RIL be able to ramp up its production to the expected levels? The company’s current gas production is 29 million standard cubic metres a day (mscmd) from its KG-D6 block. This is much lower than the target of 80 mscmd. Output from the fields is expected to fall drastically.On 6 May, Reddy informed Parliament that the gas output from KG-D6 is projected to decline to 20 mscmd by March 2015. RIL had estimated 10.3 trillion cubic feet (tcf) of recoverable reserves in the Dhirubhai-1 and 3 (D1 & D3) gas fields in KG-D6. But the revised estimate of recoverable reserves is 3.10 tcf.“At least for the next two years, the output will remain low. New investment is needed to sort out the geological issues for increasing production,” says an RIL executive. The company has spent about $10.5 billion in developing the fields. At present, RIL and BP are working on an integrated and capital-efficient plan for D6 block development, involving production from all the 18 gas discoveries in KG-D6. The R- Series and satellite fields are also covered. Officials estimate that the company could save up to $1 billion through the integrated block development plan. According to sources, the MC headed by director-general of hydrocarbons Rajiv Nayan Choubey allowed RIL and BP to develop three other gas fields in the same block, but said that the operator would be able to recover costs only after extensive appraisal of these discoveries to establish commercial viability. The MC has not yet approved the Declaration of Commerciality of the R-Series cluster comprising of D-29, D-30 and D-31 gas discoveries due to technical reasons, but it has expressed its willingness to give time to the company to solve the issues. Obviously, the MC doesn’t want to delay production from these discoveries. But RIL still needs approval from the ministry and the Cabinet Committee on Economic Affairs. The government’s move is need-based. But is Reliance, which is struggling to increase production, confident of overcoming the geological hurdles? If it fails to reach the targeted 80 mscmd, how will it recover its cost by selling the fuel? Multiple issues are staring the company in the face.(This story was published in Businessworld Issue Dated 20-08-2012)
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With losses widening to Rs 3.56 per litre, public sector oil firms on 9 August sought an immediate hike in petrol price but were unsure if the government will allow them to do so.State-owned oil firms had last hiked petrol price by Rs 0.70 per litre with effect from July 24 and since then global oil rates have soared more than $12 per barrel."We are losing Rs 1.37 per litre on petrol based on the average price of benchmark gasoline rates in the Singapore market in the previous fortnight. But current calculations based on oil price this month will be about Rs 3.56 a litre," said R S Butola, Chairman, Indian Oil Corp, the nation's largest fuel retailer.Petrol was deregulated or freed from government control in June 2010 but rarely have prices moved in tandem with the cost.The oil firms had pressed for raising rates by Rs 1.37 a litre earlier this month but the government discouraged them from doing so in view of the monsoon session of Parliament.It appears hugely unlikely that prices would be hike during the sitting of the Parliament, which began on August 8 and will continue till September 7."We have deliberated this matter and also appraised our Board... We are taking up the matter with the government," he said."Yes, there is a case for increasing petrol prices and we are pressing for it... (but) when inflation is high, there are bound to be difficulties (in increasing prices)," he said.The oil firms, he said, want decontrol to be taken back and the petrol be brought under administrative control so that losses on selling the fuel below cost can be compensated from the Budget like it is done in case of diesel, domestic LPG and kerosene. (PTI)
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Indian Oil Corp (IOC) on 9 August posted the nation's biggest quarterly net loss of Rs 22,451 crore after the government failed to compensate it for capping auto and cooking fuel prices. Simultaneously, Hindustan Petroleum Corp Ltd (HPCL), the nation's third largest fuel retailer, also posted a net loss of Rs 9,249 crore in April-June, the second biggest quarterly loss by a listed corporate. Bharat Petroleum Corp Ltd (BPCL), India's second largest fuel retailer, will report quarterly earnings on 10 August and is likely to post over Rs 9,000 crore of net loss. With losses widening to Rs 3.56 per litre, public sector oil firms on 9 August sought an immediate hike in petrol price but were unsure if the government will allow them to do so. (Read: Oil Cos Seek Immediate Hike In Petrol Price) State-owned oil firms had last hiked petrol price by Rs 0.70 per litre with effect from July 24 and since then global oil rates have soared more than $12 per barrel. "We are losing Rs 1.37 per litre on petrol based on the average price of benchmark gasoline rates in the Singapore market in the previous fortnight. But current calculations based on oil price this month will be about Rs 3.56 a litre," said R S Butola, Chairman, Indian Oil Corp, the nation's largest fuel retailer. The government has in the year not compensated oil firms for selling diesel, domestic LPG and kerosene below cost this year as the Rs 40,000 crore fuel subsidy it had budget has all been exhausted in paying compensation for last fiscal. IOC, which like other retailers is living off borrowed money, warned that it may soon exhaust the limit to which it can take debt and sourcing crude oil (raw material for making petrol, diesel and other petroleum products) would become difficult as international sellers don't give credit. The three state-run fuel retailers are losing about Rs 710 crore per day on selling diesel, domestic cooking gas (LPG) and kerosene at government controlled rates which are way below market price. Besides, the government's "inflationary concerns" have not allowed them to raise price of petrol - a fuel that was deregulated in June 2010 - even though they are losing over Rs 3 per litre. IOC Chairman R S Butola said the government should realise that oil firms are on the brink and fuel subsidies need to be addressed urgently. The three fuel retailers are projected to lose a record Rs 177,715 crore this fiscal as they sell diesel at a discount of Rs 12.13 a litre to its cost, kerosene at Rs 28.54 and LPG at Rs 231 per 14.2-kg cylinder discount. Butola said IOC's borrowings also rose because the government has not released Rs 4,800 crore out of the Rs 20,800 crore of fuel subsidy promised for 2011-12 fiscal. Besides losing Rs 383 crore per day on sale of diesel, domestic LPG and kerosene at government controlled rates, IOC is also losing Rs 1.37 per litre on petrol - a commodity which was deregulated in June 2010. The company lost Rs 25,526 crore in revenue on selling diesel, domestic LPG and kerosene during April-June quarter. Of this, it got Rs 8,041 crore from upstream firms but the government failed to provide Rs 22,451 crore on fuel subsidy. Together with Rs 950 crore of loss on petrol, the company's revenue loss on fuel sale in April-June quarter was Rs 18,435 crore. Its turnover rose 12.4 per cent to Rs 101,936 crore in April-June period from Rs 90,713 crore a year earlier. Butola said the company sold 19.443 million tonnes of products. "Our quarterly refining throughput was 13.579 million.(Agencies)
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Shares in Cairn India fall 2.9 per cent a day after the company said its chief executive Rahul Dhir had resigned "to pursue his entrepreneurial interests".Traders say the news was unexpected, while citing uncertainty about the timing of his departure.Goldman Sachs says in a note Dhir had been the public face of Cairn India, and along with his executive team, been "instrumental" during negotiations with the government on approval for pipeline costs, volume increases and royalty changes.Goldman adds Dhir's departure raises uncertainty about how the new CEO would manage relationships with the government, as well as with different key stakeholders, or its interaction with market participants."While the immediate market reaction to the news could be negative, we believe a prompt announcement on CEO and CFO succession would alleviate some of these concerns," Goldman Sachs adds.(Reuters)
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Reliance Industries has slashed natural gas reserves in its main production gas fields in the Krishna Godavari basin D6 block by 70 per cent to 3.10 Trillion cubic feet (Tcf) due to "unforeseen geological surprises".Minister of state for petroleum and natural gas R P N Singh told the Lok Sabha in a written reply that RIL had estimated 10.3 Tcf of recoverable reserves in the Dhirubhai-1 and 3 (D1&D3) gas field in the KG-D6 block."Subsequently, the contractor (RIL) revised the estimates of recoverable reserves of D1&D3 fields as 3.10 Tcf," he said.D1&D3, the biggest of the 18 finds RIL has made in the deep-sea block in Bay of Bengal, had begun production in April 2009 and had produced 2 Tcf of gas during past three years.MA oilfield in the same KG-D6 block was estimated to hold 681.4 Billion cubic feet (Bcf) of recoverable gas reserves and RIL has now revised the numbers to 788 Bcf, he said.Singh said the block KG-DWN-98/3 or KG-D6 produced 15.106 bcm of gas in 2009-10 which rose to 20.4 bcm in 2010-11. But in the subsequent year, it fell to 15.611 bcm.The fall in output was because one-third of the 18 gas producer wells in D1&D3 fields "ceased to produce gas due to water/sand ingress in well bores," he said, adding on MA field, two of the six wells had ceased due to same reasons."The operator (RIL) has attributed lower gas production as compared to approved plan from D1&D3 fields to unforeseen geological surprises and reservoir," Singh said.The Directorate General of Hydrocarbon has attributed the fall in output to "non-drilling of the required number of gas producer wells in D1&D3 fields by the contract in line with the Addendum to Initial Development Plan (AIDP)," he said.In the AIDP, RIL had committed to drill 31 wells and produce 80 million standard cubic meters per day of gas by this time of the year. But, output is currently less than 29 mmscmd.(PTI)
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The government is close to taking a decision on capping the number of subsidised LPG cylinders to "econonomically not weaker" sections to bring down the subsidies by up to Rs 10,000 crore annually, Minister of State for Petroleum and Natural Gas R P N Singh said on 18 July.The government is also looking at partial decontrol of diesel, he said.Singh said the government gives Rs 36,000 crore in subsidy on LPG and a lot of people who are "not economically weaker sections" and don't require them, take benefit, adding, the government is looking at reducing the subsidy on LPG by capping the amount (number) of cylinders given on subsidy.Stating that the government is in an adavanced stage of taking a decision on reducing LPG subsidies, he told reporters on the sidelines of a function: "If we cap some cylinders, which do not infringe on the right of poor people who get subsidies, I think we can save Rs 8,000 crore to Rs 10,000 crore just by capping the cylinders for the rich (restricting the number of subsidised cylinders for economically not weaker sections).But he sounded cautious on the issue of raising prices of diesel, saying its a very delicate issue."If you try to raise the prices of diesel, it has a cascading effect on the economy. We are trying to work out a solution where it impacts the economy in the least manner but also brings down the fiscal deficit", Singh said. The Minister, who earlier inaugurated the 17th refinery technology meet jointly organised by Centre for High Technology and Hindustan Petroleum Corporation Ltd, ruled out absolute decontrol of diesel in the near term."It's extremely difficult for us to absolutely decontrol diesel at the moment because it would impact the economy in a very, very serious manner," he said, but added that the government is looking at partial decontrol of diesel so that the impact on the people would be of "reduced magnitude".He recalled that diesel was decontrolled in 2010 but the measure has not been implemented as the price of crude oil started rising.Singh said the state-run oil marketing companies are bleeding and are having a "terrible time" because of the subsidy burden. The government wants to bring down the subsidies on kerosene, LPG and diesel in a way that does not impact the people in a major manner and takes away subsidies from people who do not deserve them.On prices of petrol, the Minister said his personal opinion is that it should be like in the US, where petrol prices change every day, and different companies have different prices.(PTI)
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Oil and Natural Gas Corp (ONGC) and China National Petroleum Corp (CNPC) have signed an agreement to renew a cooperation pact in areas such as exploration, the chairman of the Indian company told Reuters.The energy-hungry Asian nations -- widely blamed for inflating global oil prices -- usually compete for stakes in foreign oil and gas projects to secure supplies.But the rapid growth of their economies has helped them form a strong foundation for greater cooperation."This (agreement) is for examining possibilities of mutual interest in upstream downstream and all related area" Sudhir Vasudeva told Reuters.This came after officials of CNPC met Oil Minister S. Jaipal Reddy and officials from ONGC's overseas investment arm ONGC Videsh, refiner Indian Oil Corp and gas utility GAIL (India) Ltd.Chinese and Indian oil companies are already working together on schemes in Syria and Sudan as the two nations seek reserves to feed their large economies, which require ever-increasing supplies of imported oil.(Reuters)
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The oil ministry has asked Reliance Industries and joint venture partner BP to submit all records and accounts relating to their D6 gas block off the country's east coast to the Comptroller and Auditor General (CAG) , a government statement said on Tuesday."It was ... brought to (the companies') notice that CAG recommended withholding of sanction to work plans and budgets if access to records is denied to CAG," the statement said, referring to a meeting between the companies and the ministry on July 13."Therefore, the company representatives were requested to make all the records and accounts of the KG D6 block available to the Comptroller and Auditor General as provided for in the Production Sharing Contract," the statement said.Reliance holds a 60 per cent stake in the block, while BP has a 30 per cent share.Canada's Niko Resources Ltd, which has a 10 percent stake in the block, last month slashed the reserve estimate for the block. It estimated that total proved plus probable reserves at the block had decreased to 1.93 trillion cubic feet (tcf) as of March 31.(Reuters)
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