India Conditionally OKs Reliance's Capex for East-Coast Block

NEW DELHI - India's oil ministry on Tuesday agreed to conditionally approve the capital-expenditure plans of Reliance Industries Ltd. and its partners for a key oil and gas block in the eastern offshore Krishna-Godavari basin, a senior oil ministry official said.

The ministry has also approved, subject to certain conditions, Reliance's plan to commercially develop three natural-gas discoveries -- D29, D30 and D31 -- in the D6 block, the official, who didn't want to be named, told reporters.

The approvals, for three years beginning April 2010, will allow India's largest company by market value and its partners -- U.K.-based BP PLC and Canada's Niko Resources Ltd. -- to make fresh investments for increasing production of natural gas at D6.

Falling gas output at D6, considered India's richest gas find so far, has dragged down the country's overall gas production, forcing it to import costlier liquefied natural gas.

The development also signals a thaw in the relations between Reliance, controlled by billionaire Mukesh Ambani, and the oil ministry. The two are locked in an arbitration over the recovery of expenses for developing D6.

The official didn't explain the conditions or disclose the amount of expenditure that has been approved. The Press Trust of India reported that the government has approved more than $1 billion of spending.

Tushar Pania, a spokesman for Mumbai-based Reliance, declined to comment.

According to production-sharing contracts for the oil and gas sector in India, the explorer invests in developing oil and gas blocks and later recovers the money through selling hydrocarbons. The investments made by the explorer need to be cleared by the government.

Reliance is currently producing 29 million standard cubic meters a day of gas from its D6 block against plans of 80 mmscm/d, Oil Minister Jaipal Reddy said Tuesday, ahead of a meeting of Reliance and its partners in New Delhi with oil-ministry officials to discuss the gas-production scenario in the KG basin.

India's total domestic gas output is about 106 mmscm/d.

Mr. Reddy said the lower-than-estimated production had severely hit power production.

"Whatever the contractor [Reliance] needs technically or administratively to raise production, we will do," he said.

Coal and natural-gas shortages have crippled India's power production. The country suffered massive blackouts for two consecutive days last week, wreaking havoc on businesses and travelers and sparking public outrage.

While Reliance holds a 60% stake in the block, BP owns 30% and Niko 10%.

Copyright (c) 2012 Dow Jones & Company, Inc.


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