Growth through Energy
Security for India
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.
Energy markets have improved significantly over the past
12-15 months as a result of improved economic growth,
higher demand for refined products and limited supplies
of crude oil. In 2010, global oil demand grew by 3.4% (or
2.9 MMBD) to 87.9 MMBD, which is the highest growth
in the last 30 years. Emerging Asia which comprises India
and China, accounted for 40% of the oil demand increase.
Global LNG markets also grew by 13% and are currently at
275 million tonnes per annum (MMTPA).
Crude prices increased 25% during the year wherein Brent
oil prices averaged $86.7/bbl vis-a-vis $69.5/bbl in
FY-10. In FY-11, the US benchmark Henry Hub gas prices
averaged $4.13/MMBTU vis-a-vis $3.98/MMBTU in
FY-10. Prices remained range-bound in the US due to excess
drilling and lack of export infrastructure. However, Asian
LNG prices remained linked to crude oil and spot prices in
recent months touched $10-12/MMBTU.
RIL - BP partnership
It is expected that global energy consumption growth will
average at around 1.7% per annum over the next two
decades. Of this, non-OECD energy consumption is
expected to be 68% higher by 2030, averaging 2.6% p.a.
growth, and accounting for 93% of global energy growth.
OECD energy consumption in 2030 is expected to be
around 6% higher than today, with growth averaging at a
measly 0.3% p.a. over the next two decades.
The fuel mix is changing relatively slowly, due to long
asset lifetime, but gas and non-fossil fuels are gaining
share at the expense of coal and crude oil. The fastest
growing fuels are renewables (including biofuels) which are expected to grow at 8.2% p.a. 2010-30; among fossil
fuels, gas grows the fastest (2.1% p.a.).
Non-OECD countries are likely to account for 80% of the
global rise in gas consumption, with growth averaging at
around 3% p.a. Demand growth is expected to be the
fastest in non-OECD Asia (4.6% p.a.) and the Middle East
(3.9% p.a.). It is expected that over the next two decades,
China could consume about 43 BCF per day, which is
comparable to that of the 47 BCF per day that EU currently
consumes. The growth is expected to remain modest in
OECD markets (1% p.a.), particularly in North America.
Oil continues to suffer a long run decline in market share,
while gas is steadily gaining. Natural gas is projected to
be the fastest growing fossil fuel globally. Production is
expected to grow in every region except Europe, with Asia
accounting for the world's largest production and
The IEA estimates that global upstream capital spending,
which had fallen by 15% in 2009, has rebound in 2010 and
is pegged at $ 470 billion. Global offshore capital
expenditure is estimated at $ 150 billion and nearly $ 874
billion is expected to be spent over the next five years. A
substantial portion of this investment will flow into deepwater.
Deep-water capital expenditure is pegged at nearly
$ 50 billion and deep-water production is set to double in
the next five years. Currently, there are very few fields
with water depths of more than 2,000 meters under
development. Many of the recent discoveries have been
in those water depths. The capital expenditure sanctioned
in this water depth is likely to double by 2012.
The role of unconventional oil is also expected to increase
significantly and will touch 10% of world oil demand by
India continues to remain amongst the fastest growing
economies of the world with a projected growth of 8-9%.
Consequently, India's energy needs are expected to treble
by 2035 from 468 million tonnes of oil equivalent (MTOE)
to nearly 1405 MTOE. India can fulfill its agenda for climate
change as natural gas used to generate power has half the
CO2 emissions of conventional coal power generation and
near-zero sulphur emissions.
Indian gas market
In India, gas constitutes around 10% of the current energy
basket compared to the global average of 24% and hence
presents a vast potential for growth. The demand for
natural gas in India is expected to grow at a CAGR of 10%
over the next five years and could soon be a significant
player in the global gas market.
On February 21, 2011, RIL and BP announced a strategic
partnership between the two companies and signed the
relationship framework and transactional agreements. The
partnership across the full value chain comprises BP taking
a 30% stake in 23 oil and gas production sharing contracts
that Reliance operates in India, including the producing
KG-D6 block. The partnership will aim to combine BP's
deep-water exploration & development capabilities with
Reliance's project management & operations expertise. The
two companies will also form a joint venture (50:50) for the
sourcing and marketing of gas in India and bid together
for incremental opportunities in the deep-water blocks in
the east coast of India.
BP will pay RIL an aggregate consideration of $ 7.2 billion,
and completion adjustments, for the interests to be
acquired in the 23 production-sharing contracts. Future
performance payments of upto $ 1.8 billion could be paid
based on exploration success that results in development
of commercial discoveries. RIL will continue to be the
operator under the production-sharing contracts.
Completion of the transactions is subject to regulatory
and the Government of India approvals.
RIL gas marketing
KG-D6 was the single largest source of domestic gas in
the country for FY-11 and accounted for almost 35% of
the total gas consumption in India. The gas from KG-D6
catered to demand from 57 customers in critical sectors
like fertilizer, power, steel, petrochemicals and refineries.
The gas from KG-D6 accounted for about 44% of the total
domestic gas production paving the way for increased
energy independence for the country.
RIL's E&P business: KG-D6
KG-D6 gas fields completed 730 days of 100% uptime and
zero-incident production. An average daily gas production
from KG-D6 block for the year was 55.9 MMSCMD with a
cumulative production of 1,257 BCF since inception, of
which 720 BCF was produced in the current fiscal. An
average oil production for the year from the block was
21,971 barrels per day with a cumulative production of 14
MMBL of oil and condensate since inception, of which 8
MMBL of oil and 1 MMBL of condensate was produced
in the current fiscal.
In the D1-D3 gas fields a total of 20 wells have been drilled,
of which 18 are production wells. Of these, 2 wells have
been drilled this fiscal.
6 wells in the D26 field are under production. Of these,
MA-2 which was earlier a gas injection well has been converted to a production well since April 2010.
An integrated development plan for all gas discoveries in
KG-D6 is being conceptualized. This will encompass
existing wells and other discoveries within the block to
maximize capital efficiency and to accelerate monetization.
Other domestic blocks
The Company made six discoveries during the year which
are as follows:
- Well W1 in the KG-V-D3 block
- Well AF1, AJ1, AT1, AN1 and AR1 in on-land
The Company has also submitted initial proposal for
commerciality to DGH for review and discussion for the
- Discovery D33 in GS-01 block
- Discoveries D39 and D41 in KG-V-D3 block
- Discovery D36 in KG-D4 block
RIL has submitted an integrated appraisal programme for
all discoveries in Part A of CB-10 block. Further, RIL has
been continuing with the appraisal activities for the other
discoveries in KG-D6, KG-V-D3 and CB-10 blocks.
Panna-Mukta and Tapti fields
The Panna-Mukta fields produced 9.3 MMBL of crude oil
and 52.1 BCF of natural gas in FY-11 – a decline of 31%
and 25% respectively over the previous year. The lower
volumes are on account of complete shutdown due to
failure of the single point mooring system (SPM) and
parting of anchor chains 4 and 5 to the SPM from July 20,
2010 to October 25, 2010.
Tapti fields produced 1.2 MMBL of condensate and
95.2 BCF of natural gas in FY-11 – a decline of 22% and
13% respectively over the previous year. The decrease in
production was due to a natural decline in the reserves.
Drilling of 6 wells in Panna-L is expected to commence
soon and oil production is expected in the later part of
FY-12. Its reserves are estimated at 7.0 MMBL. The
anticipated production from all 6 wells is approximately
RIL holds 3 CBM blocks in Sohagpur (East), Sohagpur
(West) and Sonhat. So far, RIL has completed the following
work in the Sohagpur (East) and Sohagpur (West) blocks:
- Over 40 core holes drilled, logged and tested for gas
content, permeability and coal properties
- 31 wells air drilled and tested for productivity
- 75 hydraulic fracturing jobs done
- 5 cavitation completion wells and 2 sets of in-seam
The process for acquiring land for well sites, market
assessment & infrastructure for evacuation and
transportation of gas has commenced.
During the year, Reliance entered into one of the fastest
growing opportunities emerging in the U.S. unconventional
gas business through three upstream joint ventures. These
joint ventures will materially increase Reliance's resources
base and provide Reliance with an entirely new platform
to grow its exploration and production business while
simultaneously enhancing its ability to operate
unconventional resource projects in the future.
RIL - Chevron
RIL, through its subsidiary, Reliance Marcellus LLC,
entered into a joint venture with Atlas Energy, Inc. (now
owned by Chevron Corporation) under which Reliance
acquired a 40% interest in Atlas' core Marcellus shale
acreage position. The acquisition cost of participating
interest in the JV consisting of $ 339 million of upfront
payment and an additional payment of $ 1.36 billion under
a carry arrangement for 75% of Atlas's capital costs over
an anticipated seven and a half year development
programme. Reliance becomes a partner in approximately
300,000 net acres of undeveloped leasehold in the core
area of the Marcellus shale in southwestern Pennsylvania.
The acreage will support the drilling of over 3,000 wells
with a net resource potential of approximately 13.3 TCFe
(5.3 TCFe net to Reliance).
While Atlas will serve as the development operator for
the joint venture, Reliance is expected to begin acting as
development operator in certain regions in coming years
as part of the joint venture. Under the framework of the
joint venture, Atlas will continue acquiring leasehold in
the Marcellus shale region and Reliance will have the
option to acquire 40% share in all new acreage. Reliance
also obtains the right of first offer with respect to potential
future sales by Atlas of around 280,000 additional
Appalachian acres currently controlled by Atlas.
RIL - Pioneer
RIL, through its subsidiary, Reliance Eagleford Upstream
LP, entered into a joint venture with Pioneer Natural
Resources Company under which Reliance acquired a 45% interest in Pioneer's core Eagle Ford shale acreage position
in two separate transactions. Pioneer and Newpek LLC,
Pioneer's existing partner in Eagle Ford, simultaneously
conveyed 45% of their respective interests in the Eagle
Ford to Reliance. Newpek owned an approximate 16% nonoperated
interest in Pioneer's core Eagle Ford shale
acreage. Following the transaction, Pioneer, Reliance and
Newpek own 46%, 45% and 9% of the joint venture
The joint venture has an approximate net working interest
of 91% in 289,000 gross acres implying 263,000 net acres.
Reliance paid $ 1.315 billion for its implied share of 118,000
net acres. This upstream transaction consideration
included combined upfront cash payments of $ 263 million
and additional $ 1.052 billion capital costs under a carry
arrangement for 75% of Pioneer's and Newpek's capital
costs over an anticipated four years. The joint venture's
leasehold, which is largely undeveloped, is located in the
core area of the Eagle Ford shale in south Texas. Low
operating costs, significant liquids content (70% of the
acreage lies within the condensate window) and excellent
access to services in the region combine to make the Eagle
Ford one of the most economically attractive
unconventional resources in North America. Pioneer
believes the acreage will support the drilling of over 1,750
wells with a net resource potential to the joint venture of
approximately 10 TCFe (4.5 TCFe net to RIL).
The joint venture plans to increase the current drilling
programme to approximately 140 wells per year within three
years. Also included in the transaction is current
production of 28 MMCFe/d (11 MMCFe/d net to Reliance)
from five currently active horizontal wells. While Pioneer
will serve as the development operator for the upstream
joint venture, Reliance is expected to begin acting as
development operator in certain areas in coming years as
part of the joint venture. Under the framework of the joint
venture, Pioneer will continue acquiring leasehold in the
Eagle Ford Shale and Reliance will have the option to
acquire a 45% share in all newly acquired acres.
Additionally, Reliance and Pioneer formed a midstream
joint venture that will service the gathering needs of the
upstream joint venture. Reliance's subsidiary, Reliance
Eagleford Midstream LLC, paid $ 46 million to acquire a
49.9% membership interest in the joint venture. Pioneer
and Reliance will have equal governing rights in the joint
venture and Pioneer will serve as operator.
RIL - Carrizo
RIL, through its subsidiary, Reliance Marcellus II, LLC,
entered into a joint venture with Carrizo Oil & Gas, Inc.
Under the transaction, Reliance acquired a 60% interest in
Marcellus shale acreage in Central and Northeast
Pennsylvania that was held in a 50:50 joint venture between
Carrizo and ACP II Marcellus LLC, an affiliate of Avista
Capital Partners. Pursuant to the transaction, Reliance
acquired 100% of Avista's interest and 20% of Carrizo's
interests in the joint venture. Reliance and Carrizo own
60% and 40% interests, respectively, in a newly formed
joint venture between the companies. Reliance agreed to
a total consideration of $ 392 million, comprising $ 340
million of initial payment and $ 52 million of drilling carry
obligations. The drilling carry obligations will provide for
75% of Carrizo's share of development costs over an
anticipated two year development programme.
The joint venture will have approximately 104,400 net acres
of undeveloped leasehold in the core area of the Marcellus
shale in central and northeast Pennsylvania, of which
Reliance's 60% interest will represent approximately 62,600
net acres. This acreage is expected to support the drilling
of approximately 1,000 wells over the next 10 years, with a
net resource potential of about 3.4 TCFe (2.0 TCFe net to
Conventional E&P international blocks
RIL has 13 blocks in its international conventional portfolio,
including 2 in Peru, 3 in Yemen (1 producing and 2
exploratory), 2 each in Oman, Kurdistan and Colombia, 1
each in East Timor and Australia; amounting to a total
acreage of over 99,145 sq. km.
Reliance Exploration & Production DMCC (REP DMCC)
has farmed in Block 39 (Peru) with 10% participation
interest and relinquished Block 155 (Peru) where REP
DMCC had 28.30% participation interest.
During the year, the following activity was undertaken as
part of the exploratory campaign:
- 2D acquisition in Yemen (Blocks 34 and 37), Oman
(Block 41) and Peru (Block 39). The total 2D acquisition
was 1395 LKM.
- 3D acquisition of 800 and 400 sq.km. of 3D in Colombia
Borojo North and South respectively.
- Drilled 3 exploratory wells, 1 each in East Timor, Rovi
and Sarta. Drilling in Timor was met with limited
The results following the drilling campaign in blocks Oman
18 and East Timor K have not been encouraging and
accordingly, the expenditure incurred on these blocks
amounting to $177 million (Rs. 807 crore) has been fully provided for in the books of REP DMCC, a wholly-owned
subsidiary of RIL.