Reliance's oil dreams come true

KG-D6 block starts production. Output from oil field to reduce India's dependence on imported energy.

MUMBAI // Reliance Industries, India's most valuable company, has produced the first oil from a concession off the country's east coast, opening up a new deep-water petroleum province in the oil-importing nation. Production from the KG-D6 block, which began last week at 5,000 barrels of oil per day, is expected to hit 550,000 barrels of oil and gas daily within the next 18 months. Not only will the new field reduce India's heavy reliance on imported energy, it will also mark a coming of age for Reliance.

"With this, a new frontier area in the deep waters of our East Coast has opened up," said Mukesh Ambani, the chairman of Reliance Industries, yesterday. "It will elevate Reliance from a world-class petrochemical and refining player to a global energy major. Reliance has joined the elite club of deep-water operators." Gas production, originally expected to start at the same time as the oil, had been delayed until January, the company added.

The field is India's first sub-sea development using a floating production, storage and offloading vessel and has been developed at a water depth of 8000 feet (2438 metres). Reliance has discovered 2.5 billion barrels of oil and gas reserves in the KG-D6 block since striking the giant Dhirubhai-26 gas discovery there in 2002. Gas production from the block is expected to start at 15 million cubic feet of gas per day, gradually increasing to 80 million by the middle of 2010. New production planned by Reliance will increase India's domestic oil and gas production by 40 per cent in the next 18 months.

PMS Prasad, the chief executive of Reliance's oil business, said the delay to KG-D6's gas production was the combined result of "the weather, which isn't under our control, and also the very, very tight supply chain". He said there had been three cyclones in the area within the last 10 days. "That was an internal target, but our official target was always 2008 to 2009, and by that measure we are still on target."

The Bombay High Court has barred Reliance from signing any contract to sell gas from the field, pending resolution of a long-running legal dispute with the brother of Mukesh, Anil, whose Reliance Natural Resources Limited has a claim over the gas under a contract signed before the two brothers split the group in 2005. A Reliance Industries spokesman said if the court had yet to lift the stay on production, then the company would be forced to make further delays. The next court hearing is scheduled for Sept 29. The first shipment of oil from the field was sold on a spot basis to India's state-controlled refining company HPCL.

HPCL and Chennai Petroleum, a unit of the state-owned oil company Bharat Petroleum Corporation Limited, were the most likely buyers for the field's crude, Mr Prasad said. "It makes sense for us to sell to the refineries on the east coast of India," he said. The block produces light density, low sulphur crude oil, making it suitable for India's least sophisticated refineries. Reliance's Jamnagar refinery on India's west coast is capable of refining heavy, sour crudes.

Mr Prasad said that as Reliance needed neither the capital nor the expertise of the world's international oil companies to fully develop the block, it was not actively seeking a buyer for a stake, but may consider a swap agreement. "It's purely driven by the value proposition. That value proposition has to give us an equally prolific field somewhere else in the world where we want to be," he said.

International oil firms such as Royal Dutch Shell, Exxon and BP are seeking to farm in to discoveries made in the Krishna Godavari basin by Reliance, Oil and Natural Gas Corporation (ONGC) and Gujarat State Petroleum Company. Brazil's Petrobras and Norway's StatoilHydro have taken 15 per cent and 10 per cent stakes respectively in ONGC's largest gas discovery in the basin. [e-mail]