BP says RIL can’t be blamed for dip in output at KG-D6

BP’s Investment in RIL:

British Petroleum (BP) has defended Reliance Industries Limited’s (RIL) view that the Mukesh Ambani owned company did not hoard gas. The British company has also endorsed the view that RIL cannot be blamed for the decline in production.

RIL has been in the news of late on account of a continuous vilification campaign from the Aam Aadmi Party. However, the Indian arm of one of BP, one of the world’s biggest oil & gas companies remains optimistic about its involvement with RIL. BP plans to invest $10 billion in the next five years and wants to ensure a smooth, glitch-free relationship with the Government and concerned authorities. Sashi Mukundan, MD of BP India was quoted as saying, “We need to move things forward. We have to find a solution and move on. We must work under an umbrella of trust, like we are on the same side and not adversaries.”

The KG-D6 Issue:

The KG-D6 issue has thrown up a spate of trouble for India’s largest Private Sector Company. In spite of all the recent controversies, BP remains committed to its investment in RIL. Mukundan said that BP was in a long-term commitment in its Indian investment. Mukundan said the current price of gas makes investment in challenging, high-risk deepwater regions unviable.

All of this does nothing but contribute to hindering gas output and encourage import for liquefied natural gas. At the current price, no one would invest in deep water oil extraction according to the BP India head. “If gas is not produced, then LNG imports will rise. Already 30% of India’s gas demand is met from LNG. For BP, it doesn’t really matter whether we sell gas from deepwater in India or bring gas from some other part of the world as LNG. The country has to take a decision,” he said.

BP Backs RIL:

RIL has been penalized by the government over the decline in output. RIL is also waiting for the government’s final go-ahead to raise prices for April 1st. Commenting on the decline in output, Mukundan said it is not fair to blame RIL for the fall in production because across the world, estimated output stipulated in the field-development plan (FDP) often turns out to be different from the actual outcome.

Also, there appear to be many flaws in the production-sharing contract (PSC) developed by the government. There really is nothing in the PST that says that the field development plan (FDP) is a commitment. However, in many cases the actual production has to be equal to FDP. Also, actual production has been better than FDP.

RIL has given a bank guarantee to increase the gas prices to $8.40 from April 1st. It has to furnish guarantees that will be encashed if it is proven that the company hoarded gas, or deliberately suppressed output as the Director General of Hydrocarbons suspects.

BP has been extremely critical of the government’s barrage attacks on RIL. A gas reservoir is a machine that guarantees output of a certain level. Also, there is no way of quantifiably guaranteeing a certain produce upon investment. Regarding the alleged hoarding of gas price, BP has defended RIL by saying that it would not be possible to do this without being found out. The gas field will see a drop in pressure if hoarding was indeed being done. Also, it’s not easy to shut wells as all of them behave differently. It’s a well-known fact the world over that no field across the world produces the exact amount as predicted in early reserve estimates.

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