RIL seeks Shell's help to fix D6 snags

Falling gas production has prompted Mukesh Ambani-promoted Reliance Industries Ltd to seek help from US oil major Shell International to rectify technical glitches in its D6 block in the Krishna-Godavari basin on the country's eastern coast.

Shell International is likely to provide technical assistance for the flagship asset that has increased India's natural gas production by about 40 per cent.

RIL, which has been producing natural gas and crude oil from the K-G basin since April 2009, was unable to pump gas to full flow due to low well-head pressure.

High pressure is very important to extract natural gas.

Sources close to the development said: "RIL is a 10-year-old company which is managing a gas block of KG- D6's size for the first time. Shell, an expert in the sector, can help RIL understand why the reservoir is behaving so. Whatever data Shell generates through its study will help RIL decide what measures it can take to improve the production."

Shell had earlier audited RIL's Jamnagar refinery in Gujarat.

In an emailed statement, a Shell spokesperson said the company had no comments to offer on this issue. An email to RIL did not elicit any response, either.

The natural gas output from the KG-D6 field averaged 54.5 million standard cubic meters a day in the quarter ended December 31, 2010, down from 60 mscmd achieved in the April-June quarter.

The current production is made up of natural gas output from Dhirubhai-1 and 3 wells, known as D1 and D3, in the KG basin block KG-DWN-98/3 or KG-D6, and D-26, or MA oilfield.

RIL would need international expertise as Indian companies, including oil exploration major ONGC, would not have experience in this area since the block is in the high seas.

"Reliance will not get this help cheap. Global oil companies might ask the company to part with some of the stake in the block, in exchange for technical expertise," said a person close to the development.

Global majors like Shell and Chevron have earlier shown interest in picking up stakes in the block.

Chevron's five per cent equity in the erstwhile Reliance Petroleum, now merged with RIL, was also on the understanding that the company could pick up stakes in the D6 block.

D1 and D3 have seen their output fall from 53-54 mscmd achieved in mid-2010, to 42-44 mscmd in the week ending December 26. D-26, or MA oilfield in the same block, is producing about 8 mscmd as associated gas.

Together, the output from KG-D6 stands at 50-52 mscmd. KG D6 is estimated to have gas reserves of 11.5 trillion cubic feet.

Total investment in D6 to date is $7.8 billion.

The government's Director-General of Hydrocarbons S K Srivastava had recently said RIL was producing natural gas from 18 wells.

"Two more wells have been drilled (but not put on production) and another two are expected to be done by March. Once all 22 wells come onstream sometime in April 2011, gas output will again touch 60 mscmd."

RIL holds a 90 per cent stake in KG-D6, while Canadian hydrocarbon explorer Niko Resources Ltd owns the remaining 10 per cent.

HSBC, in its recent report on RIL's third-quarter performance, said: "RIL is unlikely to ramp up its natural gas production from current levels of 52-53 mscmd per day in the near term in absence of relevant regulatory approvals for new development, technical limitations with existing wells and long lead time for critical deepwater equipment."

According to Macquarie Research, KG-D6 output fell six per cent quarter on quarter due to reservoir issues and dragged down average gas production to 54.5 mscmd.

Royal Bank of Scotland said RIL's stock price had not risen due to concerns on its E&P operations and lack of guidance on production/ reserves is a risk.

Credit Suisse says continued silence from RIL on its E&P business can affect confidence.

"The risk is that until there is clarity on E&P, the RIL stock many not see full benefit of the improving refining and petchem businesses," the report adds.