Oil ministry set to clear RIL's revised KG-D6 capex proposal

The December-March period may finally see a renewal in Reliance Industries Ltd's (RIL) exploration operations in the Bay of Bengal. The company appears set to get approval for its $6.2 billion capital expenditure proposal for its KG-D6 block, located off the Andhra Pradesh coast.

Since Veerappa Moily took over as petroleum minister, things have been looking up for the company. Quite a departure from the time S. Jaipal Reddy was the minister, and a number of its projects were stuck. This included a proposal, submitted in 2006, to spend $8.8 billion on development of the KG-D6 block. At the time it was estimated that the block had gas reserves of 11.3 trillion cubic feet.

Reddy was controversially moved out of the ministry in the October cabinet reshuffle.

In its revised field development plan, RIL has estimated gas reserves of 3.4 trillion cubic feet in the block and proposed a capital expenditure of $6.2 billion.

Production from the block, in which Reliance partners with BP Plc and Canada's Niko Resources, has fallen to 23-25 million metric standard cubic meters per day (mmscmd) from the peak of 62 mmscmd in August 2010. The company says output decreased because of geological complexities. But Reddy was not convinced and kept approvals on hold.

The government has not confirmed any plans to approve RIL's revised estimates. But a change in its stance will certainly benefit RIL as it would allow the company to use the December-to-March weather bracket, when the Bay of Bengal is relatively calmer, to drill wells.

The company has also been seeking approval to develop the block's satellite fields, which the ministry has agreed to in principle.

There is, however, a caveat; RIL will have to allow an audit by the Comptroller and Auditor General. The audit will be in line with the company's production sharing contract with the government.