Niko hints at D6 windfall for RIL

Niko Resources, the Canadian oil explorer and 10% partner of Reliance Industries (RIL) in the gas-gushing D-6 block in the Krishna Godavari Basin, earned revenues of $67.63 million (Rs 320 crore) from sale of natural gas in India during the December quarter.

Around 90% (worth an estimated Rs 288 crore) of the gas came from the D6 block, the company said, giving an estimate of around Rs 2,600 crore  as RIL’s revenues from D6 block during the third quarter.

According to the company, it was able to get operating profits (called ‘netback’ in oil industry jargon) of around 83% of the proceeds of the sale of oil and gas in India, after accounting for operating expenses and government levies.

The level of ‘profitability’ was around $3.66 per mmBtu in India, compared with just $1.36 in neighbouring Bangladesh due to a 80% higher sale price.

Assuming a similar level of returns for RIL would indicate that D6 gas contributed around Rs 2,100-2,200 crore out of RIL’s total profits of Rs 4,008 crore during the quarter.

However, gas profit may dip if the industry’s claim of a seven-year tax holiday on gas is denied by the courts.

Niko also said it has drilled three wells in the NEC-25 block in the Mahanadi basin, all of which turned out to be successful.

The block is also expected to have around 9 trillion cubic feet of gas, comparable with the proven reserves in the currently producing D6 block.

RIL had, more than two years ago, submitted a development plan for the block for approval, but the government is yet to give a go-ahead. Niko said the number of discoveries has increased to 11, from the 6 mentioned in the development plan.

It said  the company will drill six more exploratory wells in the block. “The fourth well, AJ6, is currently being drilled and with success would add to the growing prospectivity of the area... A separate commerciality report for the successful AJ wells will be prepared when drilling is completed,” it said.

It also said that it has submitted a revised plan for the D6 block that seeks to tie in more and more discoveries in the block to the production facilities.

Currently, all the gas production is accounted by just two fields in the block, Dhirubhai 1 and 3.

“There have been several gas discoveries in addition to Dhirubhai 1 and 3.  A development plan for nine such discoveries was submitted to the Government of India in July 2008. However, based on the Government’s advice, in December 2009 the plan was modified to begin with four rather than nine discoveries,” it clarified.

It added that two more exploration wells are being drilled in the D6 Block and another six are expected to be drilled in the coming year.
In addition, the company will also start drilling the first exploratory well in the D4 block, near the D6, in the third calendar quarter of 2010.