Millennium Post

Reliance Industries’ $3.5 bn gas plan rejected by DGH

The Directorate General of Hydrocarbons (DGH) has refused to approve Reliance Industries' $3.5 billion plan for developing gas discoveries in block NEC-25, off the Odisha coast, as the company had not done the prescribed tests to confirm the finds.

RIL had in March-end submitted a $3.5 billion integrated field development plan for producing 10 million standard cubic meters per day of gas from the discoveries D-32, D-40, D-9 and D-10 in the Block NEC-OSN-97/2 (NEC-25) by mid-2019.

DGH, the nodal technical arm of Oil Ministry, has however refused to bring the development plan to block oversight panel, called the Management Committee, for approval disputing commerciality of D-32 and D-40 in absence of Drill Stem Tests (DSTs) to confirm the finds.
Sources with direct knowledge of the development said the issue has now been referred to the Oil Ministry as at least half a dozen discoveries in the now producing KG-D6 block of RIL and several of Oil and Natural Gas Corp (ONGC) had been declared commercial in past without a DST being done.

RIL and its partner BP plc of UK, they said, have stated that DGH should have insisted on DST being done when discoveries were being appraised some years back and not now when development plan has come up for approval.

They also feel DSTs are not just expensive proposition that will have bearing on government's profit take but also not conclusive tests to confirm production profile.

The sources said that on DGH insistence, RIL, operator of the block, has agreed to do DSTs but now the upstream nodal agency says the exploration phase of the block is over and so even those cannot be permitted.

The ministry, which has been pushing for speedy development of discoveries to raise domestic output so that imports can be cut, will now decide if DGH is right in insisting on DST now and not at the time of confirmation appraisals done some years back.DGH had recently rejected Declaration of Commerciality (DoC) of three discoveries in the flagging KG-D6 block on grounds of no separate DST being done.
The sources said DGH also refused to provide sanction for drilling of a well to carry out the requisite DST on finds in NEC-25 required to prove commerciality by claiming that the timeline for drilling such a well is over.

It rejected an RIL attempt to begin pre-development activities on the ground that these discoveries cannot be treated as 'commercial' in the absence of sustainable production testing data.According to RIL, D-32 and D-40 hold an inplace reserve of up to 663 billion cubic feet capable of producing 170 million standard cubic feet per day. RIL holds 60 per cent interest in the block, while British energy major BP and Canada's Niko Resources hold 30 per cent and 10 per cent, respectively.

Sources said RIL has argued that conventional short-term DST provided information on instantaneous well rates and did not provide sustainable well production rates.It argued that sustainable field production levels could be established through an integrated approach (where seismic- MDT-log data is integrated) without carrying out individual DSTs. This approach has the remarkable ability to correctly forecast the well production rates, the company argued.International operators like BP have used these techniques as the basis for reserve bookings and investment decisions in the Gulf of Mexico, Trinidad and other established hydrocarbon basins.

The company further argued that as the NEC block is located in simple sandstone reservoir and is dry in nature, there was no need for DSTs to establish sustainable production levels.In this light, RIL opined that not carrying out DST should not come in the way of commercial evaluation of a gas discovery and an 'integrated approach' was best suited for the block.
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