RIL to investors: No improvement in govt decision-making

Reliance Industries Ltd (RIL) has told analysts there has been "no significant improvement in ground-level decision making" which has impacted the business environment. The country's largest private sector petroleum company has been peeved with the government for blocking of approvals and non-revision of gas prices produced from its underperforming KG-D6 block.

The company that is locked in arbitration with the government over cost recovery told analysts in a post second quarter presentation that there was "improving visibility for exploration and production business in India but implementation remains a concern".

A senior RIL executive told Business Standard that though the company is awaiting government approval for arresting the declining production from KG-D6 field, its partners, BP and Niko, may also not be agreeable to put in fresh investment if the gas price is not revised.

The government had fixed $4.2 a million British thermal unit as the price for natural gas produced from KG-D6 for the five years ending 2014. Its price realisation from KG-D6 at $4.2 is the lowest compared to $5.73 from Panna-Mukta and $5.57 from Tapti.

According to an analysis by Angel Broking, the company's oil and gas segment's revenue decreased by 36.7 per cent year on year to Rs 2,254 crore (Rs 22.54 billion) due to lower production from the KG D6 block mainly due to reservoir complexity.

Consequently, the segment's earnings before interest and tax (EBIT), a reflection of the company's actual performance, showed a decline by 43.4 per cent to Rs 866 crore (Rs 8.66 billion) during the quarter ending September. RIL on Monday reported over 5 per cent decline in its second quarter profit after tax of Rs 5,376 crore (Rs 53.76 billion) over the same period last year.

KG-D6 produced on an average 30 million standard cubic metres a day of gas in the first half of the financial year. The production from KG D6 declined to 29 mscmd in 2Q of FY2013 compared to 45mmscmd in 2Q of FY2012.

Gas output from KG-D6 which had peaked to 61.5 mscmd in March 2010 and was to further rise to 80 mscmd by April 2012 has been declining for more than a year. It is expected to fall further to 20 mscmd by next year. Many believe the production is being allowed to fall because RIL is stuck with a gas price of $4.2 a million British thermal unit till 2014.

The company has been saying that certain investment approvals were necessary to arrest the decline in production but in a meeting with union minister Jaipal Reddy on July 13 this year, RIL executive director P M S Prasad and BP country head Sashi Mukundan were told that approvals for budgets and work programmes for 2010-11, 2011-12 and 2012-13 for KG-D6 will be given only if the company files details to the Comptroller and Auditor General for a performance audit which goes into appraisal and drilling programmes for the field.

In its last report, CAG had raised objections on the operator not drilling the required number of wells. The meeting was attended by the entire top upstream bureaucracy.

MC is the management committee, the oversight body that monitors approvals for the block. It has representation from DGH, oil ministry and the companies.

RIL, that allowed CAG access to all information for 2006-07 and 2007-08 after protesting, is reluctant when it comes to giving information for subsequent years. It maintains that nothing in the production sharing contract (PSC) permitted an audit of operational, commercial and technical decisions of the operator.

In its report submitted last year, CAG had maintained that its scrutiny was consistent with PSC and is not "merely limited to an arithmetical totalling of charges".

Where do various RIL projects stand

KG-D6
D1, D3 & MA
Revised field development plan submitted as part of integrated strategy to MC*. Proposal cleared but approval awaited

R-Series & Satellite 1
Development plan to be given to MC. Engineering on track for development plan to be given in the second half of 2012-13

MJ1
Proposal to govt in Sept 2012. Response awaited

Coal Bed Methane
Pricing formula filed. Govt approval awaited

NEC-25 (D32 and D40)
Plan for pre-development activities given to MC. Plan to commence conceptual engineering and development plan. Request for MC meeting pending at the Directorate General of Hydrocarbons/Govt

CY-D6
Appraisal Programme for D53 discovery given to MC. Approval awaited from MC (DGH)

Source: RIL