Reliance Industries cuts India gas reserves estimate by 7%

Reliance Industries cut estimates for proven gas reserves in its Indian blocks by 7 per cent to 3.67 trillion cubic feet (tcf), less than the market had speculated on the basis of reports from the company's partners and newspapers.

The figures, released by Reliance in its 2011/12 annual report on Tuesday, could ease concerns over the size of the reserves.

Earlier this year, Niko Resources said it expected lower natural gas reserves at the KG D6 block, operated by Reliance.

Also media reports have said BP had estimated the gas reserves in the blocks it is developing with Reliance at 1.4 tcf, fuelling concerns about a likely sharp depletion in the reserves estimates.

Niko holds a 10 per cent stake in the D6 block, Reliance's biggest, while BP last year acquired a 30 per cent stake in 21 oil and gas blocks operated by Reliance, in a $7.2 billion deal.

Reliance has seen its growth outlook marred by falling gas output from the huge KG gas fields off India's east coast, and the company has been under pressure from the government and regulators to raise output.

On Tuesday, the oil minister said gas output at Reliance's D6 block is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014/15 from an estimated 28 mscmd in this fiscal year.

This number is much lower than the 60 mscmd it was producing in 2010 and far off the planned peak capacity of 80 mscmd.

"It appears that decline in pressure/production has been higher than originally predicted," Reliance said, explaining the cut in reserve estimates at certain fields within the D6 block in its annual report put up on its website.

"Volumes connected to existing wells is lower than envisaged and gas outside the main channel is in small uneconomic volumes, not participating in production," the company added.

Reliance did not disclose separate figures for the gas reserves in the D6 block, but only gave overall figures.

Earlier this week, the government disallowed a plan by Reliance, under the state policy to promote exploration, to recover costs of about $1 billion invested to develop the offshore gas field.

The company filed to resolve issues through arbitration in November, but so far the government has refused to join the arbitration.

The Comptroller and Auditor General (CAG) had last year criticised both Reliance and the government over development of the KG gas field.

SHALE GAS WEIGHS

Reliance, which formed three shale gas joint ventures in the United States in 2010 to diversify its energy portfolio, and had been eyeing more alliances, now expects the sector to face challenges because of weak U.S. gas prices and rising drilling costs.

U.S. gas prices have slid sharply since last summer as prolific output from shale gas outpaces demand, pushing down prices to a decade low of less than $2 per million British thermal units, and crimping profits for producers.

Reliance, which holds shale gas acreage through its ventures with Chevron, Pioneer Natural Resources' and Carrizo Oil & Gas, said it will work with its partners to adjust activity levels and the portfolio mix, to maximise returns on capital expenditures.

While the Chevron JV will focus on aggressive cost reduction targets for 2012/13, exploratory efforts in the Carrizo JV will focus on assessing 90,000 acres through six wells, Reliance said.

Reliance shares, which last week slipped as India's most valuable company, closed down 1 per cent at 701.85 rupees on Tuesday, ahead of the release of its annual report.

The stock, currently valued at about $44 billion, has been nearly unchanged so far this year, but lost a third of its value in 2011 on worries about its growth outlook. Last month, Reliance posted its second quarterly profit drop.

Copyright @ Thomson Reuters 2012