RIL calls ADAG ad campaign 'malicious'; wants it nipped

Reliance Industries has, in a letter to the government on Thursday, termed the advertisment campaign by the Anil Ambani Group on the development cost of Krishna-Godavari (KG) D-6 block gas field as “malicious, baseless, mischievous and ill-informed.”

The ads alleged that an increase in capital expenditure (capex) of the D6 block from Rs 12,000 crore in 2003 to Rs 45,000 crore in 2006 is expected to result in “windfall profit” for RIL.

RIL president and CEO P M S Prasad wrote in his letter to oil secretary R S Pandey that actions by the advertisers were detrimental to the reputation of the country as an attractive investment destination and that “it was necessary to nip these malafide endeavours in the bud.”

“This is totally unprovoked and unjustified attack on the credentials of the project, the government of India and RIL by vested interests having little understanding of any megaproject execution, leave alone complex deepwater projects in the E&P (exploration and production) industry. It has only strengthened our resolve to completely dedicate ourselves and our team of professionals to make development of KG-D-6 block an unparalleled success story for India,” Prasad’s letter stated.

The RIL official says the intentional missing out of the two main reasons for the rise in the capex — extension in “scope of work and debilitating market condition in the crude oil sector” —  in the public statement revealed the malicious intent of the parties that put it out.

He further explained that the development costs of D-6 block, which was estimated at $2.47 billion in the initial development plan worked out in 2003, was based on the preliminary estimates of the reservoir potential derived from information available only exploration of four wells drilled on D1D3 development areas.  However further exploration and extensive drilling in the block threw up more information that helped in better estimation of its potential. 

“The additional data brought about a sea change in the understanding of the block and its geology and, in fact, altered the concept if the development model RIL had previously worked out,” Prasad’s note said.

He said new information doubled the gas reserve and production potential of D1D3 field. This meant the firm would have to increase the number of wells and offshore and onshore facilities.

In addition to this scope of work, Prasad wrote, spiralling oil prices — that shot up over 100% between 2003 and 2006 — also led to increase in rig hire charges, installation and other services contract charges. Rig charges went up 300% while other costs increased over 50%.

“Consequently, the addendum to the initial development plan submitted in 2006, while more than doubling the estimated recoverable reserve to 11.3 tcf and plateau product to 80 mmscmd, necessitated revision in the estimated capex to $5.2 billion, with additional expenditure of $3.6 billion to be incurred over the life of the field to maintain production,” clarified Prasad.

And despite the cost escalation, he said, a Goldman Sachs study of the major E&P projects across the world verifies that RIL’s finding and development costs of $5 per barrel of oil equivalent D1D3 fields of KG-D-6 block are amongst the lowest in the world.

He said the cost was also “favourable” against major E&P projects in India during the same duration —  Cairn’s MARS and Bhagyam discoveries in Rajasthan — despite the fact that the D1D3 is a deepwater gas development while Cairn’s is an onland oil development.

Prasad says Cairn’s development cost of its two discoveries is estimated to be $3.6 billion for recoverable revenue of 390 million barrel of oil, which is “$ 9 per barrel for oil equivalent compared to about $5 per barrel of oil equivalent for D1D3.”

The RIL executive also welcomed audit by the Comptroller and Auditor General of India (CAG) to establish “transparency and openness of system as operated by us within the PSC in accordance with the best international petroleum industry practices.”

“RIL has also agreed to a special audit by CAG proposed by the government,” said Prasad.