Anil Ambani/ RPOWER/ RNRL vs DGH: Capex/ Cost of production

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Few days ago, Anil Ambani group firm questioned the credibility of audits commissioned by the Directorate General of Hydrocarbon, evoking sharp protest from the regulator. According to ADAG firm Reliance Power stated that there was a conflict of interest between the experts who carried out the validation and the contractor (RIL) for approving the Rs 45,000 crore field development costs

In reply, DGH said the cost of production even after higher capex was comparable to any other field in the country. The government approved RIL’s capital expenditure plan at $8.8 billion to produce 80 mmscmd (million metric standard cubic metres a day) of KG gas. Justifying the capex of $8.8 billion, Mr Sibal said, “The reserve of KG D-6 has gone up from three trillion cubic feet (tcf) to over 14 tcf now. The field life has increased from nine years to 13 years now. The allegation of gold plating of capex is baseless.

The cost of production for Dhirubhai 1 and 3 fields at the approved field development cost of USD 8.836 billion came to USD 1.28 per million British thermal unit, as per V K Sibal, Director General, Directorate General of Hydrocarbons.

This compares to the USD 1.25 per mmBtu cost of production of gas from Tapti field operated by BG Group of UK and USD 1.12 per mmBtu cost of gas production from Hazira field of Niko Resources of Canada. The D6 cost of production was lower than USD 2.86 per mmBtu cost of producing gas of state-run Oil and Natural Gas Corp (ONGC) and USD 1.59 per mmBtu of Oil India Ltd. Director General also stated that world over exploration and development is not judged by the capital expenditure incurred but by the actual cost of production. If Rs 45,000 crore capital expenditure claimed by them was inflated, the cost of production in terms of cost per million British thermal unit would also come higher."

Bernstein Research said in a report: "At a lower gas price of $2.40/mmbtu development of deep water gas would not be possible and would discourage deepwater gas exploration, which we believe is critical for India's long term energy security.

This issue (gas dispute between the Ambani brothers) is damaging the image of India’s E&P industry.