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BP and Reliance to spend $1 billion into KG-D6 Block

Reliance and BP in upstream and midstream Alliance

On August 7th, 2012, BP and Reliance Industries Ltd (RIL) received from the India Oil Ministry the conditional approval for the production compensation of the declining offshore KG-D6 gas field.

This decision was accelerated after three years of discussions in front of the depletion speed the matured KG-D6 natural gas field.

To compensate this loss, RIL and BP had in the meantime performed a drilling campaign in the KG-D6 Block to explore potential satellites fields and made three gas discoveries in D29, D30 and D31.

But the development of these discoveries which was stocked since then is now becoming possible.

On August 30th 2012, BP completed the acquisition of 30% interest in 21 oil and gas production sharing contracts (PSC), including the KG-D6 Block, operated by RIL.

As a result, the KG-D6 Block has working interest shared between:

 – Reliance 60%, is the operator

 – BP 30%

 – Niko Resources from Canada 10%

These 21 blocks lie between shallow water of 400 meter depth and deep water exceeding 3,000 meters depth.

As part of these 21 blocks, the KG-D6 Block is producing 1.6 billion cf/d of natural gas representing 40% of total India production and 30% of its consumption.

To support the production sharing contracts, RIL and BP defined a strategic alliance where:

 – Reliance will maintain its large project management and operator experience

 –  BP will provide the partnership with its global subsea expertise in deep – ultra deep water, and in exploration and production enhancement.

For the acquisition of 30% of the 21 production sharing contracts, BP will pay Reliance $7.2 billion.

BP justifies this capital expenditure because gas is expected to be the fastest growing fossil fuel in India, with demand growing at a rate of nearly 5% per year between 2010 and 2030.

The total Indian gas consumption is projected to grow to12.5 billion cf/d in 2025, and to exceed 15 billion cf/d in 2030.

RIL-BP’s KG-D6 project to secure 30% of India natural gas consumption

In order to restore the expected plateau production of the KG-D6 Block, BP and Reliance are working on an integrated development scheme which would include the three discoveries as soon as commercially available, together with 13 other discoveries lying in the 21 production sharing contracts.

This integrated development scheme will include to drill additional appraisal and test wells to confirm the long term sustainability of the discoveries and the capacity of their reserves to compensate the natural depletion of the KG-D6 Block.

BP and Reliance estimated the capital expenditure to complete the exploration and development of the new finds and to add all the corresponding infrastructures for a commercial production to $1 billion.

The success of this giant upstream KG-D6 project is critical for India as well as for the partners since BP and Reliance had signed in parallel a partnership for the storage, transportation and distribution of natural gas in India.

In November 2011, BP and Reliance established the India Gas Solutions Pvt. Ltd. (India Gas), to develop the global sourcing and local marketing of the natural gas in India.

India Gas‘s mission also includes the import of Liquefied Natural Gas (LNG).

India Gas is 50/50 owned by Reliance and BP where the two companies will bring their competence and resources to revamp, upgrade and expand the infrastructures for the storage, transportation and distribution of natural gas in India including the administration of the existing gas contracts to KG-D6 customers.

So the partnership between Reliance Industries Ltd (RIL) and BP is not limited to a punctual production sharing contracts for a specific project but to a long term integrated upstreammidstream alliance to secure the production and distribution of natural gas in India representing 30% of the local demand. 

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