DGH for detailed review of KG basin development plan

New Delhi, Aug 27 (UNI) The Directorate-General of Hydrocarbons (DGH) has decided on a two-pronged strategy by engaging a consultant for a quick evaluation of the phase-I of KGD6 basin and in the long-term shortlisting an internationally reputed engineering consultant firm for a detailed review of the development plan.

After instructions from Petroleum and Natural Gas Minister Murli Deora and to allay public fears on the escalation of expenditure of Reliance Industries on the development plan of D6 to get a higher price of natural gas, which has been revised by Reliance from 2.5 billion dollar in 2004 to 5.2 billion dollar and then to 8.8 billion dollar at present, DGH Director General V K Sibal has said that eminent reservoir engineer P Gopalakrishnan has been asked to look into the issue.

In a letter to Petroleum Secretary M S Srinivasan, Mr Sibal said that Dr Gopalakrishnan has been engaged to look into the reasons for the rise in phase-I capital expenditure from 2.47 billion dollar to 5.2 billion dollar and an additional 3.6 billion dollar proposed for phase-II beginning 2010.

Dr Gopalakrishnan is expected to submit the report by September 15.

Initially the 2.47 billion dollar plan was approved in 2004 to produce 5.3 trillion cubic feet (tcf) of gas at a peak production rate of 40 metric million standard cubic metres a day (mmscmd).

However, the block was later found to hold higher potential of gas reserves and the development plan was revised to 10.02 tcf of gas at a peak rate of 80 mmscmd.

''The contractors' estimate of the revised investment is higher due to the increase in number of wells and production and pipeline facilities to produce a higher volume of gas and also due to the increase in price levels in the global market for exploration and production operations,'' Mr Sibal said.

In his letter, Mr Sibal further clarified that the approval for an investment of 8.8 billion dollar was given by the contractor as a supporting document to enable techno-economic feasibility of producing gas from D-1 and D-3 fields in KG-D6.

However, Mr Sibal states that the annual expenditure is audited by a qualified independent firm of recognised chartered accountant for the purpose of allowing cost recovery.

The accounts are further audited by government appointed independent auditors.

The global practice is that the development cost estimates are revised suitably when there is escalation in price levies or change in production capacity, he added.

Mr Sibal in his letter also stated that the cost per barrel of D6 block is estimated to be very competitive when compared to international companies.

The Director General said the per barrel finding cost of KG-D6 is estimated at 5.69 dollar, compared to 10.61 dollar for PY-1 (in Cauvery basin), 34.21 dollar for CN-ON-3 (in Cambay basin) and 5.74 dollar for Rajasthan block. The cost of British Petroleum in 2005 was 5.79 dollar, he added.

Mr Sibal said development cost globally are revised when there is escalation in price or change in production capacity. ''For instance, Sakhalin project cost was revised by Shell from 11 billion dollars to 20 billion dollars. In India, during the current year, PY-1 investment was revised from 138 million dollar (2004) to 371 million dollar.'' On the idea of 'gold plating', Mr Sibal said it is misplaced and coined, out of sheer ignorance of business economics.

''Inflating the expenditure does not benefit any body, neither the companies nor the government. No company in private sector would like to increase its investment unproductively,'' Mr Sibal said.

For a business enterprise, there is no motivation to 'gold plate' its investment and the amount of 8.8 billion dollar is not the cost recoverable amount approved by the government, he said.

UNI