KGBasin

Indian energy giant Reliance Industries will pay $1.7 billion to form a joint venture at one of the most promising natural gas deposit regions in the U.S. with Atlas Energy, becoming the latest foreign company to invest in shale plays that are expected to be very lucrative.

Reliance, controlled by billionaire Mukesh Ambani, has been working hard to expand its presence outside India, break into new markets and broaden its various businesses including refining, oil and gas exploration and petrochemicals.

India’s largest listed firm will pick up a 40 percent stake in Atlas’s operations in the booming Marcellus Shale — a gas project that spans parts of Pennsylvania, West Virginia and New York in the United States and which, according to some geologists, could hold enough natural gas to satisfy U.S. demand for a decade.
With this move it joins a number of international oil companies including BP Plc, Total, Statoil and Mitsui & Co who have bought into shales, rock formations that could hold vast amounts of natural gas.

While the shale formations have proven to be lucrative, they are also very expensive to develop and environmentally sensitive. The joint ventures have given the independent oil companies who own much of the acreage in these areas access to capital and should allow foreign oil companies to pick up expertise in new drilling techniques developed for the shales.
“This marks Reliance’s foray into a totally new venture altogether. Reliance is going to generate a lot of cash flows going ahead and investments in shale gas could be a good growth opportunity,” said Deepak Pareek, oil and gas analyst with Angel Broking.

Reliance Chairman Ambani, who according to Forbes is the world’s fourth-richest man with a net worth of $29 billion, has made no secret of the firm’s overseas ambitions as the company has raised a war chest of $2 billion by selling stock in recent months.

But Reliance, founded by Ambani’s father Dhirubhai, a school teacher’s son, had not met with much success until now in its foreign takeover attempts.
Bankrupt petrochemicals firm LyondellBasell recently rejected a bid from Reliance that valued the target at about $14.5 billion, and the Indian firm also lost a race for Canadian oil sands firm Value Creation, in which it wanted to take a majority stake for $2 billion.
Shares in Reliance closed up 1.8 percent on Friday, while the Mumbai market rose 1.2 percent.

Atlas Energy shares jumped $6.44, or 20.3 percent, to $38.25 on the Nasdaq on Friday.

Shares of other companies with acreage in the Marcellus Shale, including Exco Resources and Range Resources, were also boosted by the news.
More joint ventures in the region can be expected to follow, bankers said. Exco, in particular, should be closely watched. Chief Executive Doug Miller said in February that the company was in discussions for a potential joint venture with its acreage there.
JOINT VENTURE

Atlas’s core Marcellus position consists of about 300,000 acres, largely in southwestern Pennsylvania, out of which about 120,000 acres will go to Reliance, the companies said.
Upon closing Reliance will pay about $340 million in cash and must also contribute $1.36 billion to the joint venture to develop the shale project, Atlas said in a statement.

Reliance is paying around $14,000 an acre for its share of the Marcellus acreage, which is in line with what Japan’s Mitsui paid for its joint venture with Anadarko Petroleum Corp announced in February [ID:nN16229402]. Still, the price is more expensive than most of the previously announced deals.
The members of Atlas’s management team have a background in finance and are known for their deal making skills, said Marshall Carver, energy analyst at Capital One Southcoast in New Orleans.

Atlas Energy Chairman Edward Cohen is also chairman of Resource America Inc, a publicly traded asset management company, and Chief Operating Officer Richard Weber was head of energy investment banking at KeyBanc Capital Markets from June 1997 to March 2006.
“This deal was certainly done at a good price” for Atlas, Carver said.

Atlas will serve as the development operator for the joint venture, and will retain a 60 percent undivided interest in the acreage.
Reliance will have the option to buy 40 percent in all new acreages, and also has the right to first offer for potential future sales by Atlas of about 280,000 additional Appalachian acres controlled by the U.S. firm.

Debate over drilling in the region has sharpened in recent months. Environmentalists claim the drilling fluids needed to crack the rock and free the gas can contaminate drinking water, an assertion the industry hotly disputes.
Jefferies & Co was the lead financial advisor, while J.P. Morgan Securities was another advisor to Atlas.

Barclays advised Reliance on the deal, which is expected to close by the end of April.

Source:http://www.nytimes.com/reuters/2010/04/09/business/business-us-reliance-atlas-marcellus.html?_r=1

Reliance Industries has informed oil regulator DGH that four smaller gas finds surrounding the D-1 and D-3 fields in the Krishna-Godavari basin can be commercially exploited.

RIL on February 19 informed the oil regulator Directorate General of Hydrocarbons (DGH) that four smaller gas finds, surrounding the D-1 and D-3 fields, which are currently producing around 62 mmscmd of gas, can be commercially exploited, sources in know of development said.

RIL estimates that four smaller gas finds in the prolific KG-D6 block may contain 1-2 Trillion cubic feet of reserves and may help prolong peak output of 80 million standard cubic meters per day (mmscmd) from the block, sources said.

“These four finds were made in 2008 and RIL had at that time notified them as discoveries. They have now submitted ’Potential Commercialilty Interest’ which means that they can be exploited commercially,” a source said.

Once DGH approves commerciality, RIL will submit a detailed development plan, detailing investment and production potential.

RIL has so far made 25 oil and gas discoveries in KG-D6, of which two – D1 and D3, have been put on production at an investment of $ 8.836 billion. Besides D1 and D3 gas fields and MA oil discovery, nine other gas finds were previously declared commercial and now four more may be added to the list.

In 2008, RIL submitted plans to invest $ 5.91 billion in nine satellite finds but later pruned the list to just four considering government-fixed gas price of $ 4.20 per million British thermal unit did not justify such high additional investment.

The company on December 29 revised this to $ 1.5 billion spanning 0.6 Trillion cubic feet recoverable reserves in the four finds that could produce 10 mmscmd for 6 years.

The remaining five discoveries had been kept for developing at a later date, sources said adding these five and the four finds that are now in the process of being declared commercial may be clubbed together for development.

It will take 4-5 years to bring to production the four finds for which field development plan (FDP) has been submitted and the other finds may not come into production before 2016 by when D1 and D3 output would have hit decline phase.

The discoveries would be tied-up with Dhirubhai 1 and 3 (or D1 and D3) production facilities, which are designed to handle 80 mmscmd of output.

Sources said the mining licence for most of the 1.9 million acres of KG-DWN-98/3 or KG-D6 block has expired that it would need extension from the government to do additional exploration work.
The mining lisence expiry, however, may not impact the approved commercial finds which would be more governed by the field development plan approved by the DGH and the government.

Source:http://beta.thehindu.com/business/article392880.ece

India’s Reliance Industries has started drilling its fifth exploration well on the KG-V-D3 block off India. Drilling started on 2 April 2010 using the Transocean’s drillship Deepwater Expedition, partner Hardy Oil said in a statement.

The well aims to test Miocene and Pliocene sands and will be drilled to a target depth of 3514 metres. Three consecutive gas discoveries have been made in on D3: Dhirubhai-39, Dhirubhai-41 and Dhirubhai-44. Drilling on the fourth well, G1, was suspended due to limited rig availability but will resume at a later date, Hardy said.

The D3 block lies in the the Krishna Godavari basin off the east coast of India. The work commitment for the acreage includes the drilling of six exploration wells.

Reliance operates KG-V-D3 with a 90% interest. Hardy Oil holds the other 10%.

Source:http://www.upstreamonline.com/live/article211193.ece

Natural gas from Reliance Industries’ prolific D6 field has generated savings worth thousands of crores of rupees for power and fertiliser companies, the main users of the gas.

Commercial production from the field in the Krishna Godavari (K-G) basin started on April 2 last year.

The gas-based power industry is estimated to have saved Rs 6,000 crore over the last year, while the government’s fertiliser subsidy bill is estimated to be lower by Rs 3,100 crore.

Users within the country could get gas from the D6 field, located off the Andhra cost, at a landed cost of $ 4.2 per million British thermal units (mBtu). This price was much lower than alternates like imported liquefied natural gas (LNG), the price of which touched over $20 per mbtu. It was, however, higher than the subsidised price at which the government sold gas to select customers.

NTPC, the country’s largest power producer, could reduce its pricey LNG imports as domestic gas became available. The power sector, the biggest consumer of K-G gas, was sold about 18 mscmd of gas, used across 4,745 Mw of power capacity.

According to industry experts, the cost of generating power from naphtha, assuming a naphtha price of $10 per mBtu, would be Rs 3.97 per unit, while the cost of generation from KG-D6 gas assuming a delivered price of $6 per mBtu would be Rs 2.50 a unit. “Depending on the current price of naptha (which is an alternative feedstock), the power sector is estimated to have saved about Rs 6,000 crore while using gas as feedstock,” said Rakesh Jain general manager (energy division) at Feedback Ventures.

These savings have gone to the pocket of the consumer, according to Jain, since most producers have agreements with the state power utilities to simply pass on the cost of fuel to the consumers.

The average saving to a household in Andhra Pradesh, a state which houses some of the plants to which the D6 gas has been allocated, would be as much as Rs 300 per month, according to industry experts.

This is assuming an annual power consumption of 2,448 kilowatt hour.

The fertiliser sector also benefitted, as it switched to gas.

“It has been a very good experience. The supplies have been stable, leading to smooth operations, and we did not use any naphtha (as fuel) in the past one year. The subsidy saving to government from our plant alone is around Rs 100 crore,” said Kapil Mehan, executive director, Tata Chemicals.

The company is using 0.88 million standard cubic metres a day (mscmd) of K-G gas at its fertiliser plant in Babrala (Uttar Pradesh). The total gas supply to fertiliser sector during 2009-10 was 12.24 mscmd, which translated to a production of 6.10 million tonne of urea.

The D6 field is currently producing 60 mscmd of gas.

The government, through its gas utilisation policy, has made allocations to various priority sectors like power, fertiliser, steel, city gas, refineries, petrochemicals, LPG and captive power.

The power sector has been allocated 31.165 mscmd of gas on a firm basis and another 12 mscmd of gas on fallback basis. The fertiliser sector has been given firm allocation of 15.508 mscmd, refineries have been given 5 mscmd of firm allocation and 6 mscmd of fallback allocation and the steel sector has been given 4.19 mscmd firm allocations.

A fallback allocation implies that the sector will get gas if the firm allocation of other sectors is not fully consumed due to some reason.

Source:http://www.business-standard.com/india/news/power-fertiliser-firms-reap-gains/390496/

Union Petroleum Secretary S Sundareshan on Saturday said that south India will start getting natural gas from the Krishna-Godavari basin from 2012.

The Ministry of Petroleum and Natural Gas had called for a meeting of Reliance Industries Ltd (which owns the gas fields) and Gas Authority of India Ltd (which lays pipelines) about ten days ago and told them to implement the project in a “strict timeframe”.

Reliance has been authorised by the government to lay a pipeline from Kakinada to Chennai and this pipeline would further extend to Tuticorin. Reliance would also lay a pipeline between Chennai and Bangalore, he told a press conference here.

The gas would start flowing to Tamil Nadu anytime between March 2012 and the end of that year, he said. There would be connectivity to Madras Fertilisers Ltd and SPIC, he said, referring to the two fertiliser companies, whose operations are suffering for want of natural gas.

On the issue of pricing of petroleum products, he said, “It is not possible to insulate consumers continuously from the volatile international crude price and the government has to take a hard decision in the future.”

At present, subsidy component for petrol is Rs.5 per litre, for diesel Rs. 3, for kerosene Rs. 16 and for LPG Rs. 260 a cylinder. Due to under-pricing the government had incurred an expenditure of Rs.45,000 crore in the current financial year.

Poor people were forced to pay for supplying subsidised petrol and petroleum products to those who were affluent.

The Secretary said oil marketing companies were fully geared to meet the increasing demand for petroleum products, which had been going up at 15 per cent per annum for petrol, 8 to 9 per cent for diesel, and 10 per cent for LPG. In Tamil Nadu, there had been a 10 per cent increase of LPG consumers every year. The State had achieved a coverage of 75 per cent in respect of LPG supply, which might increase to 83 per cent in the next four or five years.

There was no shortage of LPG in the State and new connections were being released to prospective consumers without any waiting list and efforts were being made to supply refills expeditiously.

Source:http://www.hindu.com/2010/03/21/stories/2010032159130100.htm

Reliance Industries-operated D6 gas field in the Krishna-Godavari (KG) basin has produced more than 10 bn cubic meters of natural gas worth over $1.5 bn in the first 10 months, a senior official in the oil ministry said. RIL commenced gas production from its KG-D6 on April 2, 2009.

Oil minister Murli Deora confirmed that the ministry has reviewed gas production from KG-D6. “It is a major achievement in country’s energy security. The (gas) production has helped industries particularly power and fertiliser sectors,” he told ET.

As per an oil ministry’s note, about 22 million standard cubic meter per day (MMSCMD) gas from KG-D6 is supplied to power units. “This has helped in generating an additional 5,000 MW power. It not only reduced the cost of producing power but also revived four stranded power plants in Andhra Pradesh,” the official said requesting anonymity.

“Now most of these power plants (getting KG-D6 gas) are running on a 90% plant load factor (PLF),” he added. PLF is measurement of average capacity utilisation of a power plant. Earlier, PLF of these power units was around 60%.

Due to the KG-D6 gas, government has been able to save subsidies on urea production to the tune of about Rs 4,000 crore, he said.

RIL is currently producing about 60 MMSCMD gas from KG-D6. “It is an achievement that the company has ramped up gas production in such a short time. It is only 20 MMSCMD less than achieving peak production level of 80 MMSCMS,” he said. At present production is taking place in 16 wells. But all 18 wells of KG-D6 are ready to commence production.

Reliance has already signed gas sale purchase agreements (GSPAs) with 48 customers for supplying over 61 MMSCMD. Consumers are specified by an empowered group of ministers (EGoM), and they are from fertilisers, power, city gas distribution, steel, LPG, refinery and petrochemical sectors.

In December 2009, RIL successfully tested the design capacity of its KG-D6 deepwater gas production facilities which gave a flow rate of 80 MMSCMD. RIL has been able to produce first gas from its KG-D6 block in a record time of six and a half year. Normally, deepwater production of such scale takes 9–10 years time. The KG-D6 gas field is one of the top five largest deepwater gas projects globally.

Source:http://economictimes.indiatimes.com/articleshow/5601365.cms

KG D-6’s gas has affected the LNG’s spot market. Power and Fertilizer companies have diverted their attention towards KG D-6 for the gas supply. In last one month, in Hazira and Dahej terminals, not even a single cargo of LNG spot cargo has been arrived.

The spot market of Liquid Natural Gas (LNG) is shrinking. This could well be estimated from the fact that the business has faced beating in last one month at the Hazira LNG terminal of Shell and Dahej terminal of Petronet LNG. KG D-6’s gas has affected the LNG’s spot market to a great extent during the recent times. Reliance Industries’ (RIL) prolific KG D-6 is now producing 60 million standard cubic metre of natural gas every day (mmscmd) and has almost replaced the spot LNG demand in the country.

Most of the power and fertilizer companies have diverted their attention from the spot market of LNG to KG D-6. Supply of KG D-6 gas has largely replaced the demand of spot LNG. This is evident from the fact that before the allocation of KG D-6 gas, RIL itself was consuming almost 4 cargoes of LNG every month. According to the government sources, in last one month, in Hazira and Dahej terminals, not even a single cargo of LNG spot cargo has come.

Chief Executive Officer and Managing Director of Petronet Mr P Dasgupta said, “Today no one is making any LNG’s spot deal, the last LNG spot cargo was arrived in November 2009. The demand can only be there with advent of new energy and fertlizer companies. The present demand for the gas is being met by KG D-6 gas and the long term gas demand is being met by import of LNG by Petronet.”

According to the sources the future price of LNG is close to $8.2 per mmbtu, while KG D-6 gas is available at $4.20 per mmbtu. Till December last year even RIL was buying spot LNG from Hazira, every month for its Jamnagar Refinery. After it was allotted KG D-6 gas, no one is buying at spot LNG from Hazira. One of the officers of Shell India, also confirmed low spot LNG business, however, he refused to shares the figures.

Prior to KG D-6 gas supply, total gas supply in the country was staggering at around 110 mmscmd, including the long-term LNG sourced by PLL and Shell, as against the demand of about 175 mmscmd. Remaining gas demand was met through spot LNG. With the production of 60 mmscmd gas from KG D-6 field, the present demand of gas in the country is satisfied. However, the gas demand in the future is likely to rise again in the coming years as the domestic supply is unexpected to match the pace of growing energy demand of the nation.

Source:http://oilandgasindia.blogspot.com/2010/02/kg-d-6-gas-fast-replacing-spot-lng.html

Reliance Industries Ltd (RIL) is yet to take a final decision on roping in a new partner for the Haryana SEZ coming up in Gurgaon and Jhajjar. While speculations are on that the company is in talks with Infrastructure Leasing & Financial Services (IL&FS) and the modalities are being worked out, sources in Haryana State Infrastructure and Industrial Development Corporation (HSIIDC), the joint venture partner in Reliance Haryana SEZ, informed FE that so far the corporation has not received any formal notice fromRIL about the issue.

“Things are likely to be clear once RIL takes a final call on the issue and inform us about the development. After that the steering committee meeting will be held and decision will be taken about the ownership share and other things,” said a senior HSIIDC official.

However, RIL, while accepting that plans are on to engage a strategic partner, maintained silence about the name. Reliance Industries spokesperson said, “The company plans to engage a strategic business associate to maximise the potential of the investments made so far and make the SEZ a truly global investment destination.”

“We have about 10,000 acres of land in possession in two districts and are currently focusing on getting requisite permissions, statutory approvals and clearances, transfer of legal titles, contiguity and financial closure to start the operation. The company has so far invested over Rs 3,000 crore in the project. The project is envisaged to be developed as a fully integrated Industrial Township to attract global and domestic investments.” he added.

The HSIIDC official further said that the company has approached the corporation for acquiring about 1,700 acres of land in Jhajjar for maintaining contiguity. “We have also recommended that Reliance SEZ be developed as a nod under the Delhi-Mumbai Industrial Corridor project. It will facilitate better industrial development within the SEZ,” he said.

Reliance has also filed for seeking a fresh in-principal approval for its Gurgaon SEZ, after the Centre refused to extend the same in December last year, as SEZ rules don’t permit giving third extensions. The approval is yet to come from the Centre.

The Inter-ministerial Board of Approval (BoA) had asked RIL and ten other developers to apply afresh along with respective state governments’ recommendations.

Reliance Haryana SEZ was granted the in-principle approval in March 2006 and the proposals were valid till March 2009 after two extensions.

Source:http://www.financialexpress.com/news/RIL-yet-to-rope-in-partner-for-Gurgaon–Jhajjar-SEZ/574165/

“Reliance Group is increasing sales in the domestic market to meet higher demand,” said James Williams, an economist at energy research firm WTRG Economics in London, Arkansas. “Exports aren’t that profitable since demand in OECD countries is weak.”

The Paris-based Organization for Economic Cooperation and Development represents most of the world’s high-income economies such as the U.S., Japan and Germany.

The Mumbai-based energy explorer and refiner sold 20.65 million metric tons of fuels in India in the nine months ended Dec. 31, up from 8.01 million tons a year earlier, according to Bloomberg calculations based on export figures released by the company.

Reliance, India’s biggest non-state company, started an export-oriented 580,000-barrel-a-day refinery in December 2008. It’s next to an older plant that can process 660,000 barrels a day. Together, they make up the largest refining complex in the world, according to Reliance.

Reliance in 2009 became one of the top 10 charterers of Aframax tankers to ship petroleum products, according to a report released by Poten & Partners, a shipbroker. Aframaxes can carry 637,500 to 1.02 million barrels of fuels.

Source:http://www.bloomberg.com/apps/news?pid=20601091&sid=ann1GXXxXhuw

The world’s largest refining hub could just get even bigger. The second refinery, set up by Reliance Industries Ltd (RIL) at its Jamnagar complex in Gujarat, has already overtaken the older, adjacent refinery in production volumes and could go even further–exceeding its design capacity by at least 20 percent, according to four persons familiar with the development.

The second refinery, which was commissioned by RIL in end-December 2008 to process 580,000 barrels per day (bpd), started full-scale commercial production early this fiscal. It operated at 115 percent of its stated capacity in the October-December quarter, according to the firm’s 22 January statement.

At this rate, the refinery could refine 667,000 bpd, overtaking RIL’s older Jamnagar refinery, which can process 660,000 bpd. Put together, it’s the largest refining operation globally at a single location.

At least two firm officials familiar with the matter and two sector analysts confirmed that the new refinery had the “elbow room” to boost capacity up to 700,000 barrels of crude of oil a day or a fifth more than its nameplate capacity. Although this comes at a time when most sector analysts are forecasting a subdued outlook for the refining and petrochemical segments, they are less worried about the impact an extra dump of refined fuels could have on the oil-and-yarn conglomerate. Other refiners will lose out not RIL, they said.

“Right from the time the design plan for this refinery was announced, a section of the market believed that the capacity will eventually be higher than announced. It happened with the previous refinery too,” said Mumbai-based brokerage Angel Broking Ltd’s analyst Deepak Pareek. He estimates that RIL’s profit before tax could swell by as much as Rs750 crore if the new refinery operated at 120 percent of its stated capacity.

A questionnaire emailed to the RIL spokesperson on Friday remained unanswered till press time. A firm executive explained that when all the parameters in a refinery–such as the crude mix, pressure, heat catalysts and other operating conditions–are at optimum levels, then it can process more than its design capacity through “debottlenecking”, “especially if some elbow room is built into it”. The executive, who did not want to be identified, added that this happened in other places as well, such as fertilizer plants.

Apart from a possible increase in refining, RIL is also undertaking steps to boost storage. International news agency Reuters had reported on 28 January that RIL had leased capacities to store petrol at the Borco oil terminal in the Caribbean, as it eyes the US market and those to its south. The deal on the 500,000 barrels storage facility was secured sometime towards the end of last year, it had said.

“All refineries and plants when they are designed and contracted out, are supposed to run at a certain capacity. To keep it steady at that level, usually a 10-15 percent higher capacity is built into it as a buffer,” said a sector analyst with the Indian arm of a foreign brokerage who, along with his counterpart in another brokerage firm, confirmed that the Mukesh Ambani-owned firm had indicated successfully “stress testing” the new refinery up to 700,000-710,000 barrels of crude a day. The refinery seems to have stabilized faster and achieved higher performance sooner than the street expected. Stress testing helps to determine the stability of a given system and involves testing it beyond the normal operational capacity, often to a breaking point, in order to observe the results.

This analyst, who did not want to be named as he doesn’t officially speak to the media, said the previous refinery too had undertaken the same route and went from a stated capacity of 27 million tonnes to 33 million tonnes– an increase of about 22 percent.

“This higher capacity will be a very low cost expansion,” pointed out Pareek. Concurred the other analyst: “This will go straight to the profits since no capital expenditure is incurred. And this extra capacity is an option RIL can choose to exercise or not. It gives flexibility.” Analysts pointed out that additional supply might depress the product prices but refined fuels are ultimately a commodity with existing demand. This means, if RIL produces more, it may edge out less efficient suppliers.

RIL beat street estimates in the December quarter earnings, clocking higher refining margins–or earnings from turning crude oil into a number of fuels–of $5.9 (around Rs274) per barrel and much of it on account of the higher utilization of the new refinery. The firm doesn’t report margins for the two refineries separately and hence, one cannot delineate its efficiency from the overall performance. The firm had reported a $4 per barrel premium over Singapore gross refining margins, the Asian benchmark, marking a rebound after eight quarters in which RIL saw its lead over peers eroding.

RIL’s chief financial officer Alok Agarwal told reporters after the latest quarterly results that he was “confident” the refining margins will improve in 2010. The new refinery could be of help here.

Source:http://www.livemint.com/2010/01/31220652/RIL8217s-new-Jamnagar-unit.html