RIL’s developed reserves in D6 have halved

While Reliance Industries (RIL) admitted in its annual report for 2011-12, released last week, that gross proven reserves of its D6 block in the Krishna-Godavari (KG) basin have declined by 6.68%, that doesn’t seem to be the end of the story.

Sifting of the numbers shows developed reserves of the block have fallen by a massive 36% in the last one year alone. And that’s just for the stake held by Mukesh Ambani-controlled RIL - the 60% owner and operator of the block.

The broader picture is more dismal. The total developed reserves of the D6 block have seen substantial erosion in reserves potential - from 4.2 trillion cubic feet (tcf) at the beginning of 2011-12 to 1.5 tcf at the closing of the year.

The fall is almost 51.76% if output of 0.6 tcf is considered.

Reserves of oil and gas blocks are quantified in terms of ‘gross proven reserves’, or the so-called ‘1P’ reserves.

Where a company has already incurred capital expenditure and converted a block into an operating and producing one, it’s called ‘proven developed’ reserves.

In such blocks, only minimal operating costs are incurred to draw out oil and gas.

RIL had 21 producing wells spread across the D1 and D3 fields in the D6 basin, where UK oil and gas giant BP took a 30% participating interest in August last year.

All these are proven developed reserves and have seen a halving of reserves potential.

According to RIL’s 2011-12 annual report, for the 60% stake held by RIL, the value of 1P reserves in D6 has fallen from 6.6 tcf (185,821 mn cubic metres) to 3.7 tcf (103,958 mn cubic metres) in the last one year, which includes the production of 0.6 tcf.

But, at the same time, proven developed reserves have corrected from 3.8 tcf to 0.9 tcf.

Meaning, total proven developed reserves of the three partners — Reliance, BP and Niko Resources — that they can extract stand at a mere 1.5 tcf.

“The proven developed reserves life of the D6 field theoretically will not be for more than eight years (until fiscal 2020), assuming a constant production-decline rate,” said Gagan Dixit and Sapan Shah, analysts with brokerage Quant,  in their May 9 note.

They said this means D6 gas production should fall to 15 million metric standard cubic metres per day (mmscmd) by fiscal 2015, if no attempt is made to upgrade undeveloped reserves.

This is in line with the latest statement issued by Union minister for petroleum, Jaipal Reddy, last week, who said by 2014-15 the D6 block would be producing just 20 mmscmd.

Dixit and Shah said this validates their view that the BP-led consortium expects lower recovery from producing wells, compared with initial estimates.

In its annual report for 2011 published in January, BP had said that it estimates just 1.4 tcf of proven developed reserves of the D6 block.

RIL started production in the first quarter of fiscal 2010 when it produced 19 mmscmd against a target of 20 mmscmd.

While it was not able to meet targets for every quarter since, RIL, however, was increasing production consistently till the fourth quarter of 2010 when it produced 60 mmscmd of gas.

Since then, the production slid consistently and touched a low of 22 mmscmd.