Reliance Industries Limited’s (RIL’s) minority partner Niko Resources of Canada has stated that the flagship KG-D6 block holds 80 per cent less natural gas reserves than earlier estimated.
The announcement by Niko Resources through a statement on Thursday sent the RIL stocks tumbling 2.58 per cent to close at Rs.718.60 on the BSE.
In the statement, Niko, which owns a 10 per cent stake in the KG-D6 block off the East Coast, said the proved plus probable (2P) reserves at KG basin D6 block has declined to 1.93 trillion cubic feet (tcf) from its previous estimate of 9.65-9.9 tcf. Originally, RIL had put 2P reserves at Dhirubhai 1 and 3 (D1&D3) fields in the KG-D6 block at 5.32 tcf in the November 2004 initial field development plan. It had subsequently, in 2006, scaled up the reserves to 11.3 tcf and cited higher gas volumes for rise in capital expenditure to $8.8 billion from the earlier $2.4 billion. RIL offered no comments on the development.
While RIL holds 60 per cent interest in the D6 block, U.K.’s BP plc owns the remaining 30 per cent.
In its Reserves and Contingent Resources Update, the Canadian oil company said the total proved plus probable natural gas reserves in its various blocks have fallen almost 51 per cent to 377 billion cubic feet equivalent (bcfe) mainly due to lower reserves in KG-D6. “The reason for the decline in reserves referred to above relates to the D6 block. Proved plus probable reserves at D6 as at March 31, 2012, have reduced to 193 bcfe,” the statement said.
Natural gas output at KG-D6 fields has dipped to 31.33 million metric standard cubic meters per day (mmscmd) in June after hitting a peak of 61.5 mmscmd in June 2010. RIL had, in 2006, stated that output would rise to 80 mmscmd by 2012-13. It is further projected to drop to 28 mmcmd this fiscal and to 20 mmscmd in 2012-13.
Niko said the government was considering increasing the price of KG-D6 gas for 2012-13 and 2013-14. The government had set $4.205 per million metric British thermal unit (mmBtu) as the price of gas from KG-D6 block for first five years of production, that is, up to March 31, 2014.
Niko said the field performance at the D1/D3 fields during 2011 demonstrated higher than expected pressure draw-downs.
“An assessment of reservoir performance concluded that, contrary to the previous geological model, the current D1/D3 producing wells did not appear to be receiving any contribution from outside the main channel areas. While a portion of the change relates to production, the vast majority relates to field performance and a revised geological model,” it said.
“The revised model no longer anticipates reservoir outside the main channel fairways.
“In addition this new interpretation and model has had an adverse effect on the geometry, orientation, the aerial extent of the reservoir net rock volume and size of the main channel rock volumes,” the statement added.