Reliance Industries has not kept its commitment on drilling wells on the prolific eastern offshore KG-D6 field that has seen drastic fall in production,the oil regulator DGH said today.
Reliance had committed to drill 22 wells on Dhirubhai-1 and 3 fields – the largest of 18 gas discoveries in the block KG-DWN-98/3 or KG-D6 block in Bay of Bengal,by April 2011 to produce 53.4 million standard cubic meters of gas per day.
Another 8-9 mmscmd output was to come from MA oilfield in the same block,taking the total output committed in the Field Development Plan (FDP) to 61.88 mmscmd by April 2011.
Against this,it has so drilled and completed 18 production wells on D1 and D3 fields giving a combined output of about 42 mmscmd,Directorate General of Hydrocarbons (DGH) Director General S K Srivastava said today.
Besides,two other wells have been drilled but not connected to production system.
“It has to drill two more wells by April,” he said but did not say what action the government or DGH can take if Reliance failed to honour its commitment.
Output from KG-D6 is to hit peak of 80 mmscmd by 2012-13 with Reliance drilling a total of 31 wells.
Oil Minister S Jaipal Reddy also parried questions on what the government can contractually do if Reliance defaults.
D1 and D3 gas fields and MA oilfield are currently producing about 50 msmcmd,lower than 61.5 mmscmd output the block had achieved in March 2010.
“This fall in the output of KG-D6 has been reported to us. Our DG,DGH is in contact with the operator (Reliance) of KG-D6… We do not know about the reasons for the fall… its technical issues. We are in correspondence with Reliance… we are in contact with them,” Reddy said.
Asked about the action government can take against Reliance for not meeting its commitment,the minister said the question was “hypothetical”. A well in deepwater takes up to 6 months to drilled and completed.
Reliance has projected that gas output from D1 and D3 gas fields will fall further to 38 mmscmd in 2012-13.
In its annual work programme,submitted to upstream oil regulator Directorate General of Hydrocarbons (DGH),Reliance has projected maintaining the current production levels during 2011-12 fiscal.
Reliance spokesperson could not be immediately contacted for comments.
D1 and D3,the largest of the 18 gas discoveries that Reliance and its 10 per cent partner Niko Resources of Canada have made in the 7,645 square kilometer KG-D6 block,had touched 53-54 mmscmd of output in March last year but the production has fallen since.
“The fields have enough reserves to support peak output of 80 mmscmd. But what Reliance has now learnt is that the gas is stored in isolated pools,which are not connected to each other. It is not able to derive entire volumes out,” an industry official said.
Some people argue that drilling more wells could solve the problem but Reliance has concluded that the cost of drilling,completing and connecting the well to the production system exceeds the economic value of the gas to be produced.
A solution to the problem may lie with London-based BP Plc,which is buying 30 per cent stake of Reliance in 23 oil and gas blocks including KG-D6,for USD 7.2 billion.
“BP has faced similar issues around the world and its expertise will help Reliance overcome the problem,” he said.
Reliance does not propose to drill more wells on D1 and D3 unless it has BP on board and the drilling plans are vetted.
Officials said Reliance has projected crude oil output from the MA field in the same block to fall to 12,050 barrels per day in 2012-13 from about 17,000 bpd current production.
Reliance at present sells 14 mmscmd of gas from KG-D6 to fertiliser plants,24 mmscmd to power plants and the remaining 13 mmscmd to other sectors like sponge iron plants,LPG,city gas distribution (CGD),petrochemical plants and refineries.
Reliance has so far made 18 gas and one oil find in KG-D6,which it won in consortia with Niko under the first round of the New Exploration Licensing Policy (NELP) in 2000.
Of these,two gas (D1 and D3) and one oil (MA) discovery have been put on production. D1 and D3 commenced output from April 1,2009,while MA started production from September 17,2008.
Reliance has been forced to restrict production from the MA oil field to about 17,000 bpd due to high water and gas output,sources said,adding that the field was yielding more water than oil and that even 8 mmscmd of gas in comparison to oil output was considered quite high.
The MA field had five oil producing wells and one gas producer.
Furthermore,four gas discoveries have been declared commercially viable,while the Field Development Plan (FDP) for nine satellite finds was submitted on July 14,2008,for approval.
The FDP for the nine satellite fields was not found techno-economically viable and Reliance submitted an Optimised FDP (OFDP) for four of these nine satellite fields on December 29,2009. The OFDP is under evaluation by the DGH.
One discovery is under appraisal and Reliance has so far not submitted a declaration on the commercial viability of two other finds.