RIL's K-G gas play may get bigger with D4 block

The Krishna-Godavari (K-G) basin may prove to be a much bigger play for Reliance Industries Ltd. This follows the announcement that its D4 block could hold twice the reserves of the in-production D6 block to the north.

Canada's Niko Resources, which holds 15 per cent stake in the block with RIL holding the balance, has said prospective gas reserves in D4 could be significantly higher than previously estimated.

In a recent presentation to analysts in Canada, Niko Resources CEO Edward S Sampson said, "I feel it's twice the size of D6. We feel we have got prospectivity potential for up to 100 trillion cubic feet (Tcf) of gas. It would change India."

RIL's estimated 40 tcf of gas in place at K-G D6 has recoverable reserves of 11.5 tcf, the largest deep-water find in India so far. RIL is the operator of both the D6 and D4 blocks.

The drilling in D4 is expected to start by the end of this financial year, which is when a much better evaluation of the actual prospect for the block can be carried out.

Analysts said reserves are classified as proved, possible and probable. "Considering Sampson has not mentioned any of that, it's too early to ascertain what he is hinting at," said one analyst. The possibility of recovering gas from any field depends on the permeability of the reservoir and how porous it is. There is no relationship between the prospectivity and the actual commercial production for a block, he explained.

But industry experts say that at a most optimistic estimate, actual recoverable reserves in a gas field could be as high as 50-70 per cent of the in-place reserves.

Both RIL and Niko officials in India downplayed the development, saying they are yet to begin drilling in the block. According to some analysts, two preliminary wells have been drilled and work on a third has just begun.

But analysts said the development would certainly have a strong impact on RIL and Niko valuations and, thereby, their stocks. "With 100 tcf of in-place reserves, this could approach in size some of the largest natural gas blocks in Qatar or Iran. This is a possible indication, but it's early days yet. Drilling will only confirm whether it does have that kind of potential," said Jal Irani, an oil analyst at Macquire.

Officials from the Directorate General of Hydrocarbons, the downstream regulator, could not be contacted for a view on the development. But in a similar case in March, DGH did not certify the contingent resources of Cairn India when it raised estimates of in-place reserves at its Rajasthan field to 4 billion barrels of oil equivalent from 3.7 billion. Director-General of Hydrocarbons S K Srivastava had said, "The DGH does not certify contingent resources."

RIL's shares ended Wednesday at Rs 1,044.60, up 2.09 per cent, on the Bombay Stock Exchange.

Sound Prospects

Niko holds 15% in the block, with RIL holding 85%

Recoverable reserves in the gas field could be 50-70%

Drilling to start by March 2011

Development to have a strong impact on RIL and Niko valuations