RIL, Partners Focus on Deep Sea Fields, may Withdraw Arbitration Against Govt
Cos invite bids from contractors; quotes to help assess field development costs that have fallen dramatically
New Delhi: Reliance Industries (RIL) and its partners BP and Niko have formally started the process of developing their deep sea fields, which industry executives say signals their intention to withdraw arbitration against the government — a necessary condition if they want to charge market price for natural gas.
Reliance, on behalf of the consortium, published a notice on Tuesday inviting expression of interest from contractors for engineering, design and a turnkey contract for the development of the fields, including undeveloped fields in the KG-D6 basin. The bidders have until April 29 to submit their interest.
The bids will help Reliance assess afresh the field development costs that have dramatically fallen since the company last prepared it a few years ago. The two-thirds fall in oil prices in two years has slashed oilfield services rates as oil firms across the world have cut down drilling, leaving equipment idling and therefore, cheaper. After receiving quotes from the vendors, Reliance will prepare new field development plans and submit it to regulator, the Directorate General of Hydrocarbons (DGH), after a few months, sources said.
“The recent reforms announced by the government of India will provide the much needed impetus to the Indian oil and gas industry. Together with our partners, we are working with the government to progress activities in our blocks,” BP said in an email. Reliance Industries didn’t comment for the story. Last month, the government announced a new policy measure that links prices of gas from undeveloped difficult fields such as deep sea and high pressure-high temperature areas to alternati- ve fuels, effectively doubling the prices. While the maximum price available to domestic natural gas is $3.06 per unit, difficult fields can avail $6.61per unit as gas price, according to the latest prices announced by the oil ministry
The policy, however, bars fields from availing higher prices where the operator is engaged in litigation against the government, challenging the latter’s authority to fix gas prices. This would hurt Reliance until it withdraws its arbitration against the government. Top executives of Reliance and BP have met government officials recently to discuss plans to develop discoveries affec- ted by the new policy.
Industry executives said the notice seeking vendors strengthens the idea that Reliance and partners may now be ready to abandon the arbitration against the government although a lawyer for RIL didn’t drop a hint in this regard during a court hearing on the matter on Monday. The company has initiated arbitration against government’s moves to deny recovery of some costs and over the gas-pricing regime of the government.
The new policy on gas prices can potentially benefit Reliance’s eight discoveries with reserves of 2.53 trillion cubic feet of gas. Reliance, meanwhile, has submitted to the DGH the proposals for declaration of commerciality of some of its discoveries affected by this policy, including R series and satellite fields in the KG basin.
A long-standing industry demand to raise prices for riskier and more capital-intensive deep sea projects prompted the government move that is expected to push up gas output in the country. Following the policy change, state-run Oil and Natural Gas Corp (ONGC) also unveiled a $5-billion plan to develop its deep water KG basin fields last month.