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Rediff.com  » Business » Reliance gas production cost at $2.9 per mmBtu

Reliance gas production cost at $2.9 per mmBtu

Source: PTI
June 23, 2009 16:22 IST
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Reliance Industries has put the cost of producing natural gas from its prolific Krishna Godavari basin fields at $2.9 per million British thermal unit and the firm will earn a pre-tax return of 13 per cent.

RIL and its Canadian partner Niko Resources is investing $8.8 billion in developing Dhirubhai-1 and -3 fields on top of about $1 billion it spent on discovering and appraising the two gas discoveries.

The exploration and development cost of D1-D3 fields at 10 trillion cubic feet gas reserves (1.5 billion barrels of oil equivalent) certified by oil regulator DGH, works out to be $6.7 per boe or $1.1 per mmBtu, a source in the consortium said.

The operating cost is estimated to be about 33 cents per mmBtu. At the government approved natural gas sale price of $4.2 per mmBtu, the royalty payable to the government at average 7.5 per cent works out to 32 cents per mmBtu.

The total pre-tax cost including exploration, development, operating expenditure and royalty would be $1.75 per mmBtu, he said, adding the gas reserves would accrue to RIL-Niko after deducting government's share of revenue which would be around 40 per cent over the life of the field.

When contacted, the RIL spokesperson declined to comment. The total cost of production after profit share works out to be $2.9 per mmBtu, the source said, adding this cost did not include return on capital.

The source said that at the gas sale price of $4.2 per mmBtu, the return on capital works out to be $1.3 per mmBtu or $1.3 billion per annum at maximum production of 80 million standard cubic meters per day.

"At an investment of $10 billion, this translates to a pre-tax return of 13 per cent at peak production," he said.

The return has been calculated at the P2 reserves, which means 50 per cent probability of recovery. DGH has put P2 reserves at 10 Tcf. The P1 reserve, which means 90 per cent probability of recovery, is at 4.4 Tcf.

If the reserves are less than the estimated P2 reserves, the per unit cost would be much higher resulting in further lower returns, he added.

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