Hitting back at the Anil Dhirubhai Ambani Group (ADAG) for unleashing a “malicious, mischievous, baseless and ill-informed” campaign against its KG-D6 gas field costs, Mukesh Ambani’s Reliance Industries Ltd (RIL) said the campaign by people with little experience of large projects should be nipped in the bud.
“It is necessary to nip these malafide endeavours in the bud for the sake of energy security of the country,” wrote RIL president and CEO PMS Prasad in an August 20 letter to petroleum secretary RS Pandey.
“This totally unprovoked and unjustified attack on the credibility of the project (KG-D6), the government and RIL is by vested interests having little understanding of any mega project execution, leave alone complex deepwater projects in the E&P industry.”
On ADAG allegations over increasing the capital expenditure (capex) costs of KG-D6 from Rs 12,000 crore to Rs 45,000 crore, Prasad said the development cost was the lowest in the world. “The issue is mindlessly being described as a windfall profit to RIL.”
He said RIL has reiterated cost estimates for initial development plan (IDP) of $2.47 billion (Rs 12,000 crore) were made in 2003. “The IDP were based on preliminary estimates of the reservoir potential,” he said. This was followed by exploration work and extensive drilling, which led to additional data becoming available which better exposed the potential of the block.
Finally, between 2003 and 2006, oil prices increased by over 100 per cent, leading to sharp increase in rig hire charges, installation and other service contract charges and cost of facilities.
Consequently, the IDP submitted in 2006 more than doubled the estimated recoverable reserves and “necessitated a revision in the estimated capex to $5.2 billion (Rs 25,000 crore) with additional expenditure of $3.6 billion (Rs 17,500) to be incurred over the life of the field to maintain production.”