BP Preparing New Plan With Reliance for India’s Gas Block

BP Plc (BP/) said it’s developing a new plan with partner Reliance Industries Ltd. (RIL), operator of India’s biggest natural gas deposit, to develop discoveries in the area simultaneously instead of in phases.

“We’ve spent six months studying the reservoir and we are now working on the plan that will use existing infrastructure for production and minimize additional costs,” Sashi Mukundan, BP’s India chief, said in New Delhi yesterday.

BP, Europe’s second-biggest oil company, paid $7.2 billion to buy stakes in Indian fields operated by Reliance, including KG-D6, where output has dropped by more than a third because of technical issues. Output from the R-Series cluster, where the government has approved one discovery, and satellite fields in the block may start by the end of 2014, Mukundan said.

“The announcement gives some kind of confidence that BP and Reliance are working to raise output, but we have to see how things turn out,” said Deepak Pareek, a Mumbai-based analyst at Prabhudas Lilladher Pvt.

An e-mail sent to Reliance seeking comment wasn’t immediately answered.

Reliance climbed 1.6 percent to 794 rupees at 10:47 a.m. in Mumbai. The stock has risen 15 percent this year compared with a 14 percent gain in the benchmark Sensitive Index. (SENSEX)

The shares fell because there’s been some profit-taking, Pareek said. “It has increased a lot this year and this is a correction.”

Gas Prices

The proposal for the KG-D6 block, with production and spending projections, will be submitted in the next few weeks for the Indian government’s approval, Mukundan told reporters. BP is seeking market prices for gas produced in India, including output from the newer discoveries, he said.

“For the future gas, India needs to have a market- determined price,” Mukundan said. “We hope we get import parity pricing for gas.”

Gas from the KG-D6 field, off India’s east coast, is sold at $4.2 per million British thermal units, excluding taxes and transportation costs. The price will be reviewed in April 2014, according to the Indian government.

Japan, the world’s biggest buyer of liquefied natural gas, paid $798 a metric ton, equivalent to $15.35 per million British thermal units, last year, according to data on the website of the Tokyo-based ministry.

The government has approved one discovery in the R-Series field as financially viable, Mukundan said. The deposit is estimated to hold about 1.6 trillion cubic feet (45 billion cubic meters) of gas and may be capable of producing more than 10 million cubic meters a day at a peak rate, a person with direct knowledge of the matter said Feb. 17.

Gas Output

Three areas in the KG-D6 block in the Bay of Bengal produced about 38 million cubic meters a day in the three months ended Dec. 31. Output has declined from about 45 million cubic meters a day in the preceding quarter and a peak of 60 million cubic meters a day in 2010, according to Reliance.

The block started producing gas in April 2009 and peak output was estimated to rise to 80 million cubic meters a day. The estimated cost of developing the block was increased by Reliance to $8.8 billion in October 2006 from $2.4 billion in May 2004, the Comptroller & Auditor General of India said in a report on Sept. 8.

Gas from the KG-D6 block is sold to fertilizer-makers and power utilities, which sell products at controlled prices.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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