The Telegraph
Wednesday , May 23 , 2012
Since 1st March, 1999
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RIL dumps Mahanadi block

New Delhi, May 22: Reliance Industries and its partners BP and Niko Resources have decided to relinquish the D4 oil and gas block in the Mahanadi basin at a time the company is sparring with the government over the output from the nearby KG-D6 block.

The D4 block was estimated to have twice the reserves of the D6 block.

Niko in a statement said its decision and that of its partners stemmed from the “current geological assessment related to the size of the trapping mechanism and the commercial environment currently prevailing in India”.

Back in 2010, Niko Resources CEO Edward S. Sampson had said, “I feel it (D4) is twice the size of D6. We feel we have got prospective potential up to 100 trillion cubic feet (tcf) of gas. It would change India.”

Reliance’s D6 block is the largest deep-water gas find in India, with estimated 40tcf in-place reserves and 11.5tcf recoverable reserves. RIL is the operator of both the D6 and the D4 blocks.

Sources in Reliance Industries said “the block is being relinquished as it was found to be commercially not viable”.

BP spokesperson Robert Wine said from London that the British firm would not like to comment as Reliance was the operator.

Gokul Choudhri, energy analyst with BMR Advisors, said “we have not heard about the revised estimates of the gas since the initial potential mentioned by Niko; it is surprising that they are relinquishing the block. The reason could be that it may not be commercially viable under the current technology or the commodity prices are not attractive enough”.

According to information in Niko’s website, the Canadian firm was required to conduct seismic work and drill three exploration wells by June 2013 in D4, which is spread over 17,000 square kilometres.

Calgary, Alberta-based Niko has a 15 per cent interest in the D4 block, while BP holds 30 per cent. Reliance owns the rest and is also the operator.

Reliance has recently cut estimates of proven gas reserves in its blocks by 7 per cent to 3.67 trillion cubic feet (tcf), blaming low pressure and uneconomic volumes.

Last year, the company had relinquished 10 blocks as it aimed to reassess its portfolio and focus on raising production from D6, where it is struggling with falling output.

RIL has been demanding a higher price than the government mandated $4.2 per million British thermal unit (mBtu) for the D6 gas so that it becomes economically viable to produce from the satellite and smaller fields in the block.