Exploration and Production :: Reliance Industries Limited.

India imports about two-thirds of its crude oil requirement. Exploration and production of oil and gas is critical for India's energy security and economic growth. Reliance's oil and gas exploration and production business is therefore inexorably linked with the national imperative. Exploration and production, the initial link in the energy and materials value chain, remains a major growth area and Reliance envisions evolving as a global energy major.

Over the years the E&P industry has registered significant growth, primarily due to spiraling crude oil and gas prices. With growing competition and ever growing demand for energy, especially from developing countries, the focus is on energy security.

RIL commenced production of hydrocarbons in its KGD6 block in the Krishna Godavari basin with the production of sweet crude of 42⁰ API. The production of oil in KG-D6 was commissioned in just over two years of its discovery, making it the world's fastest green-field deepwater oil development project.

RIL is enhancing India's energy landscape. RIL has commenced gas production from KG-D6. Production from the Dhirubhai 1 and 3 discoveries of the KG-D6 block will result in a quantum leap towards achieving India's energy security as it will account for 40% of the Country's current hydrocarbon production. This will reduce India's energy dependence on external sources and help bring down subsidies in the fertiliser, power and transportation sectors.

The project was completed in six-and-a-half years from the time of discovery. This is significantly faster than the time taken for similar production facilities elsewhere in the world. The hostile weather conditions in the basin allows a fair weather window of only four months every year. RIL also had to overcome supply chain challenges, capital cost escalations and manpower shortages to adhere to its schedule. The Company was successful in ensuring that gas was made available to service India's energy needs in as short a period as possible.

The commencement of gas production from KG-D6 was a complex task. It required engineering ingenuity to develop critical infrastructure and the use of cutting-edge technology hitherto unused in Asia. With the successful completion of this project, RIL joins a select club of six large deepwater operators globally.

FY 2008-09 was clearly one of the toughest and challenging years for the industry globally. Record prices and increased focus on energy security led to reduced availability of resources and made acquisition of additional acreage tougher. Cost escalations, constrained project engineering resources and the global credit crisis restricted investments in the sector. The economic downturn that followed resulted in unprecedented demand destruction. Prices fell sharply impacting not just profitability but also future growth prospects of E&P companies around the world. Perhaps the only regions that witnessed growing investments in the sector were the deepwater regime off the East coast of India and Brazil.

The structural theme for investment in the sector remains valid. The world's hunger for reliable and affordable energy supplies is growing. Overcoming this challenge requires substantial investments, access to resources and newer technologies to unlock resources from challenging locations. The International Energy Agency (IEA), in its World Energy Outlook 2008, estimates that by the year 2030, global energy demand is expected to increase by 50% from its current level. Oil and natural gas are expected to remain primary energy sources and are expected to meet 52% of the global demand. Natural gas - a low carbon, low polluting green fuel - that will flow from RIL's blocks, will create value and benefit India. Increased concern of climate change augurs well for natural gas as it is an environmentally benign fuel with carbon emissions far lower than other fossil fuels. IEA estimates that the world requires investments to the tune of $12 trillion in the oil and gas sector over the next 20 years implying an annual investment of over $ 500 billion. The cost index of CERA remains high indicating an increase in sub-sea equipment costs despite the economic slowdown.

This was a year of contrasts. The first half of the year saw firm prices and demand. However, following the credit crisis and the slowdown in global economies, demand dropped sharply and prices reduced 50% during the second half.

IEA forecasts that the global oil demand is set to shrink by 2.7% to 83.9 MBPD in 2009. The year 2008 also saw a global oil demand slip to 86.3 MBPD, a decrease of 0.3% over 2007.

The E&P industry clocked record performance in the first half of FY 2008-09 following high commodity prices. Average WTI prices remained at $ 82 /bbl vis-à-vis $ 86 /bbl for the previous year. Henry Hub natural gas price averaged at $ 7.9 /MMBTU for FY 2008-09 as against an average of $ 7.4 /MMBTU in FY 2007-08. WTI price peaked at $ 146 per barrel in July 2008.

Globally, gas constitutes 24% of the energy basket while in India it accounts for a mere 9%. The low share of gas in India's energy consumption is attributed to limited availability and nascent infrastructure. Gas accounts for 35% of the energy mix in the former Soviet Union and Europe, 26% in USA, 17% in Japan and 15% in Korea. The share of gas in the energy mix is set to increase mainly due to growing demand from the industrial sector, city gas distribution, power sector and opportunities in the gas-to-liquids business. Gas is preferred because of its cost competitiveness and environmental advantages over other fossil fuels.

Sizeable investments over the last few years in developing the natural gas business and related logistic capabilities have resulted in increased availability of gas in key markets. Global demand and vastly improved transportation infrastructure have resulted in gas becoming a fungible commodity and this is reflected in the prevailing pricing environment. Improved availability and transportation, combined with growing demand from Asia, are resulting in the evolution of long-term gas contracts. Regional variations in prices are driven primarily out of differentiated transportation costs.

India is a growing economy with its GDP expected to grow five-fold over the next three decades. The Country's energy needs are expected to grow four-fold from 433 million tonnes of oil equivalent (MTOE) to around 1,856 MTOE by 2032, as per the Integrated Energy Policy of the Planning Commission of India. However, India has a huge dependence on imports with over 75% of oil and 25% of gas consumption being imported. In relative terms, India's East coast is underexplored with its exploration density of 0.15, which is amongst the lowest in the world.

The energy landscape is now set for change. The East coast of India covers a vast stretch of sedimentary area of 2.0 million sq KMs. The coast has been divided into three major geological provinces viz. the Mahanadi basin, the Krishna Godavari basin and the Cauvery Palar basin. The super discoveries in the Krishna Godavari basin have put the East coast of India into a global focus. The KG basin is now compared with the Gulf of Mexico and North Sea in their earlier days. RIL has more than 25 blocks in the East coast of India with exploration at different stages of maturity. Several discoveries have taken place in all the three basins and a large number of prospects / leads have been identified for future exploitation. With drilling success ratio of 54%, RIL's drilling campaign is expected to target these basins.

Recent deepwater exploration campaigns have enhanced the geological understanding significantly bringing about new geological plays. The hydrocarbon accumulation has been established in both the biogenic and thermogenic corridors. The stratigraphic succession of older mesozoics and younger tertiaries provides a distinct 'twotier' petroleum system distribution.

Demand for gas in India is set to increase from 179 million metric standard cubic meters per day (MMSCMD) to 280 MMSCMD over the next decade, as per the Planning Commission, Government of India. Supply, however, is unlikely to keep pace with demand and the share of imports is set to rise.

Increased availability of gas and enhanced investments in transmission and distribution infrastructure will act as the key enablers for its increased contribution to the energy pool. The New Exploration Licensing Policy (NELP) has ushered in an era of heightened investments in exploration, which has resulted in truly large scale discoveries.

The appraisal of the southern area of KG-D6 is underway targeting the extension of the channel levee fan complex system within the tertiary sequences i.e. Pleistocene, Pliocene and Miocene. Interpretation of 3D seismic data during the year has led to identification of new prospects in this area.

Acreage was added to the portfolio through domestic and international acquisitions.

During the year, Reliance farmed out 25% participating interest in Block K in East Timor. Reliance now has 14 blocks in its international E&P portfolio including 3 in Peru, 3 in Yemen (1 producing and 2 exploratory), 2 each in Oman, Kurdistan and Colombia, 1 each in East Timor and Australia, with total acreage of 99,000 sq KMs.

RIL's domestic E&P portfolio comprises 30% interest in Panna-Mukta and Tapti (PMT) fields; 31 exploration blocks awarded under the NELP and Pre-NELP licensing rounds and 5 coal-bed methane (CBM) blocks. The total domestic acreage is 325,000 sq KMs.

RIL has acquired this portfolio keeping in perspective its prospectivity off the East coast of India and to balance its portfolio in India and overseas. The portfolio comprises both on-shore and off-shore as well as shallow and deepwater blocks. RIL is committed towards playing a significant role in creating energy security for the Nation in its endeavour towards becoming a global integrated energy company.

Production of around 2,000 barrels of oil per day (BOPD) from 2 completed wells commenced in 1Q 2009 from the Panna block. Work on the Panna-K platform & pipeline installation is complete and drilling of 6 wells in the area has commenced.

The SWP jacket and deck installation is expected to be completed in FY 2009-10. The drilling of 3 wells is expected to commence thereafter.

The development plan of the Panna PL was approved by the Director General of Hydrocarbons, India (DGH) and the same is expected to be completed in 2011.

The gas production in Tapti is estimated to ramp up following the planned drilling of three in-fill wells in FY 2009-10.

Development plans for the CBM blocks, NEC-25 and KGD6 satellite fields have been submitted to the Government and are under consideration.

Oil production of light and sweet crude (with API of 42), which can be processed by any refinery, commenced from the KG-D6 MA field. In order to expedite production, RIL commissioned India's first Floating, Production, Storage and Offloading vessel (FPSO) in a record time of two years from the discovery.

Gas production commenced from KG-D6 (D1 & D3 discoveries) in a record time of six-and-a-half years from the time of discovery. In one of the fastest ramp-up in any gas field worldwide, the gas production has ramped up to nearly 40 MMSCMD.

RIL had to overcome supply chain challenges and manpower shortages. RIL's early project completion is especially commendable as the Bay of Bengal is known for its extremely hostile weather conditions and sub-sea currents of 4 knots. Inclement climate conditions allow for a fair weather window of just four months every year.

Commissioned in 6.5 years, vis-à-vis world average of 9 years
Set to transform India's energy landscape and double its gas production
Use of India's first FPSO, commissioned in less than 2 years
Among the lowest finding and development costs of comparable projects globally
World's largest deepwater production with sub-sea tie backs measuring 60 KMs
Execution involving 200 consultants and service providers from 12 countries
Mega scale construction with highest ever fleet mobilisation (89 vessels at peak)
Steel equivalent of 110,000 MT installed
Pipelines and umbilicals measuring over 500 KMs deployed
Use of smart field technology with state-of-the-art fibre optics for sub-sea controls
Largest handling terminal at a single location with a capacity of 90 MMSCMD of gas
Onshore terminal (OT) raised by 4.5 meters above MSL using 5.7 million tonnes of sand
Involved 30 million man-hours with peak deployment of 12,000 personnel

The facilities comprise wells and sub-sea architecture, which are connected by flow lines and production risers to a Control-cum-Riser Platform (CRP) and are tied back to the onshore terminal located 60 KMs from the gas fields making it amongst the longest tie-backs in the world.

KG-D6 field operations are controlled and monitored at the OT. For control and monitoring requirements of the sub-sea facilities, a multiplexed electro hydraulic control system comprising power and communication equipment, a Umbilical Distribution Hub (UDH), sub-sea distribution assemblies (SDA), sub-sea distribution units (SDU), subsea control modules (SCM), Xmas tree mounted instrumentation and associated hydraulic and electrical flying leads were conceived.

Production from the reservoirs is routed through the Deep Water Pipeline End Manifold (DWPLEM) via infield pipelines and two 24-inch pipelines from the DWPLEM to the CRP. Three 24-inch trunk lines carry the production from the CRP to the OT for processing and downstream distribution.

The competitiveness of KG-D6 should be viewed in the context of a sizeable increase in supply chain cost, which has more than doubled since 2002. The significant increase in the production profile of the block thereby necessitated a change in the development plan; rig costs increased by 300% and all other costs also rose by 50% to 100% during the development period.

Gas from the KG-D6 field is being received at an onshore facility at Gadimoga in the state of Andhra Pradesh and delivered to the East-West pipeline.

RIL has signed gas contracts that are in line with the Gas Utilisation Policy of the Government of India. Accordingly, standard gas contracts have been signed for a 5-year period at $ 4.2 /MMBTU with companies in the fertiliser, power and the sponge iron sectors. Production has already reached 5 billion cubic meters of gas from this block.

Panna-Mukta fields produced 1,615,221 tonnes of crude oil and 1,668 MMSCM of natural gas for FY 2008-09, a decrease of 15% and 18% respectively as compared to the previous year. The decrease in production at Panna- Mukta field was due to the shutdown in June 2008. Production was restored to pre-shutdown level in August 2008.

Tapti block produced higher gas volumes of 4,205 MMSCM and 271,570 tonnes of condensate, registering a growth of 25% and 17% respectively as compared to the previous year. The effect of the NRPOD project was fully realised in the incremental production in FY 2008-09.