BP and Niko Resources, Reliance Industries Ltd’s (RIL) partners in the KG-D6 block, have informed the Ministry for Petroleum and Natural Gas that they, too, will shoulder the responsibility of a bank guarantee along with the Indian partner. RIL and its partners have to pay a bank guarantee to benefit from the higher gas price effective April 1.
In separate letters to the Ministry, the two companies said that as joint venture partners in the block, they were equally responsible in meeting any obligation.
The partners were reacting to the terms of the Ministry’s draft agreement for a bank guarantee to be paid by the consortium, which only mentioned the Indian company’s name.
According to RIL, the guarantee has to be paid by all the three consortium partners jointly, depending on their stake (RIL: 60 per cent; BP: 30 per cent; Niko Resources: 10 per cent).
Only after the bank guarantee calculations and the process of furnishing the guarantee are finalised will the amount to be paid be decided.
An official involved with the developments said last week that the Ministry had been told that as per the production-sharing contract, both BP and Niko Resources are full joint venture partners in the block.
The joint agreement between the three partners authorises the operator, in this case Reliance Industries, to act on behalf of the consortium. This includes dealing with the Government.
However, Petroleum Ministry officials were noncommittal on whether they would consider the request of RIL’s consortium partnersin the D6 block, off the Andhra Pradesh coast.
“We will send the proposal to the Law Ministry for their views,” said a senior Ministry official.
Guarantee calculationIndications are that the gas price effective April 1 may be over $8/unit (gas is measured in million British thermal units).
If the price is over $8.4/unit, the bank guarantee on a quarterly basis could be in the range $100-120 million and could go up to $130 million, depending on the price.
According to RIL, the bank guarantee will be based on the actual daily output of the D1 and D3 fields (the producing fields in the D6 block) multiplied by the difference between the new and existing gas prices and the number of days of production.
The Petroleum Ministry said the guarantee would be based on indications in the field development plan, and the shortfall in output.
The new price is likely to be almost double the current price of $4.2/unit at the landfall point that RIL gets from the D6 block. This price excludes transportation charges, marketing margin, State taxes and levies.
Recently, RIL and its partners reversed the decline in output from the block. Current production from the fields (D-1, D-3 and MA) is 14 million standard cubic metres a day and is likely to be maintained at this level this fiscal year.