With new gas price announcement being held hostage to technicalities, British energy giant BP and Niko Resources of Canada have told the oil ministry that they are party to the arbitration initiated by Reliance Industries Ltd. (RIL) on KG-D6 gas production lagging targets.
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Niko Resources and BP, which partner Mukesh Ambani-promoted Reliance Industries Ltd (RIL) in the KG-D6 block, might not get to increase the price of gas produced from the block, in spite of Cabinet intervention. According to a senior government official, to avail of higher prices, the two companies will need to furnish bank guarantees and be part of the arbitration process initiated by RIL against the government.
The issue now threatens to impact gas buyers, since sales and purchase agreements signed by RIL are valid only till the end of this month.
The Cabinet Committee on Economic Affairs (CCEA) had on December 19 last year decided to allow RIL to almost double the price of natural gas produced from KG-D6 from April 1, provided the company gave a bank guarantee to cover its liability if charges of hoarding gas against it were proved. The officials clarify this bank guarantee will apply only to RIL, as it is the only company that has gone ahead with the arbitration.
“Though the bank guarantee will soon be notified by the law ministry, there are certain technical difficulties. Till both BP and Niko become part of the arbitration process, they won’t be allowed to draw higher gas price. Also, Cabinet had cleared the bank guarantee for RIL alone,” said an official. >> Read More
Having reversed the falling output at KG-D6, Reliance Industries and its partner BP plc will quadruple production at the eastern offshore fields to around 40-45 million standard cubic meters per day by 2020.
With addition of a well this month jacking up output by 2.5 mmscmd to 13.7 mmscmd, RIL-BP is repairing shut wells that will help further raise output to 16 mmscmd.
“At the end of 2013 we were producing around 11 mmscmd of gas (from KG-D6). With the (well) interventions that we are doing right now and also the fact that the oilfield (the block) which is producing most of its oil and now we are getting ready to blow down the gas in that. All this together, we hope to at least increase the production by another 50 per cent (to about 16 mmscmd),” BP India head Sashi Mukundan said.
He said new fields in the KG-D6 blocks will start coming on stream from 2018 and “we get all the right support and approvals from the government then we hope to quadruple our production by 2020.”
The Bay of Bengal KG-D6 fields, which began gas production in April 2009, had hit a peak of 69.43 mmscmd in March 2010 before water and sand ingress led to shutting down of more than one-third of the wells. >> Read More
A surprise outcome of the Deepwater Horizon disaster may be to eliminate competition for BP’s formidable energy trading business.
The 2010 explosion and spill at a BP oil well in the Gulf of Mexico was invoked repeatedly as the Federal Reserve this week invited comment on whether to continue allowing banks to handle physical commodities such as oil and natural gas.
The Fed has given 12 bank holding companies such as Citigroup and JPMorgan Chase increasing latitude to trade physical commodities over the past decade. It is now having second thoughts, as outlined in a 19-page advance notice of proposed rulemaking.
The costs of BP’s offshore spill are referenced as evidence the Fed may have underestimated the risks of handling commodities. Past Fed approvals required banks to use oil tankers sanctioned “by a major international oil company” – a safeguard that now looks dubious.
“The oil spill involving the Deepwater Horizon drilling unit suggests that current industry safety policies and procedures may not prevent a major environmental disaster and may call into question the effectiveness of such procedures,” the Fed said. >> Read More
Upstream regulator Directorate General of Hydrocarbons (DGH) has put in a strong note of dissent against the Vijay Kelkar Committee suggestion to continue the present regime of allowing oil and gas producers to recover costs before paying the government its share.
The Director General of Hydrocarbons, R N Choubey, who was part of the Kelkar Committee, said in the note that the panel had exceeded its brief and quoted data that had no attributable author or source.
Sources with direct knowledge of the development said the panel, in Chapter 2 of its report, recommended continuation of the present production sharing contract (PSC) framework for the oil and gas sector, which allows for cost recovery by exploration and production (E&P) companies before they pay the government its share.
This was in contrast to the suggestion by the Prime Minister-appointed Rangarajan Committee to shift to a revenue-sharing model that would require companies to share a biddable amount of oil or gas output with the government from the first day of production, irrespective of cost. >> Read More
Reliance Industries and its partners BP Plc of UK and Canada’sNiko Resources may have to provide a maximum of $1.2 billion in bank guarantees over three years to get nearly double the rate for natural gas being produced from the main fields in KG-D6 block.
The Cabinet Committee on Economic Affairs (CCEA) had on December 20 decided to allow RIL to almost double the price of natural gas from April, 2014 provided the firm gave a bank guarantee to cover its liability if gas-hoarding charges are proved.
The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11, sources said. >> Read More
BP and Royal Dutch Shell have been accused of manipulating the Brent crude oil price for more than a decade, in allegations filed in a lawsuit in New York.
The North Sea oil benchmark is used as the basis for trades across the global commodity markets, affecting the price of thousands of consumer products from petrol to food.
The class action claim, brought by four traders, was lodged last month in the wake of the European Commission in May launching an investigation into alleged price rigging by the companies.
The court filing alleges that the companies – along with Norway’s Statoil, Morgan Stanley, Trafigura, Vitol and others – “monopolized the Brent Crude Oil market and entered into an unlawful combination, agreement, and conspiracy to fix and restrain trade in, and intentionally manipulate Brent Crude Oil prices and the prices of Brent Crude oil futures contracts”.
It alleges the rigging took place through the companies “deliberately reporting inaccurate, misleading, and false information regarding Brent Crude Oil prices and transactions to Platts”, one of the key price-reporting agencies. >> Read More
Petroleum and Natural Gas Minister M. Veerappa Moily’s optimism over resolving issues related to falling gas output from KG-D6 is not shared by the Reliance Industries Ltd-operated block’s oversight committee or management committee.
The committee stands divided over the issue of in-place reserves, relinquishment of area, and appointment of a third party consultant, among others, leaving arbitration as the only way out.
Though the contractors have the option of appealing to the Government if the committee remains divided, this may not yield results, as the Government has already disallowed cost recovery by the contractors and the matter is under arbitration, sources say.
The members of the committee, which consists of nominees of the Directorate General of Hydrocarbons (DGH), Government, and Reliance-BP-Niko, are yet to agree on the resolution of the meeting held on October 1, an official privy to the developments said. >> Read More
Reliance Industries’ proposal for appointing an independent consultant to assess the reasons for the drop in output at its KG-D6 block has been rejected by the block oversight committee.
This once again brings to the fore the differences among members of the committee, which comprises nominees of the Directorate General of Hydrocarbons, the Government, and Reliance-BP-Niko.
An oversight, or management, committee supervises the operations of the block.
The DGH and the Government nominee have not been buying Reliance’s arguments for the steep drop in output from the D-1, D-3 fields in the KG-D6 block.
The output at largest producing fields in the block (D-1 and D-3) has declined significantly due to what the operator calls a ‘technical snag’.
After hitting a peak of 61 mmscmd in 2010, the output is now down to roughly 10 mmscmd.
An official privy to the development said: “The reason for declining the request (for an independent consultant) is simple. The production sharing contract (signed between the contractor and Government to operate the field) has no such provision.”
A draft resolution of the meeting conveying this decision has been sent to RIL and its partners, BP and Niko, last Friday.
The meeting was held on October 1. Once Reliance signs the resolution or returns it unsigned, the Government can be approached under the appeals provision of the production sharing contracts.
The Government can then take a call on appointing an international consultant.
Another official said that “the oversight committee’s decision will actually work in favour of RIL and its partners, as the Directorate General of Hydrocarbons and the contractors were not on the same page as far as the reasons for the drop in output are concerned.”
Sources close to Reliance said the contractors (RIL-BP-Niko) were yet to take a call on the draft resolution sent by the DGH.
While agreeing that the production sharing contract is silent on the issue of appointing an international expert, sources say, “it does not mean it debars such a move. It is open to interpretation.”
According to the agenda for the October 1 meeting, the committee was to consider appointing an international expert in case of differences between the members on the gas reserves and what is recoverable from the gas fields. At the meeting, a technical presentation was made by Reliance and its partners.
Reliance and its partners suggested four third-party experts to assess the drop in output from D1, D3 fields. The names were reservoir consultants Ryder Scott (Houston/Calgary), DeGolyer and MacNaughton (Dallas), Gaffney, Cline & Associates (London/Calgary), and Netherland, Sewell & Associates (Dallas).
1) The near-term outlook for EM has brightened a bit with the Fed’s about face on tapering