Jan. 3 (Bloomberg) -- Billionaire Mukesh Ambani’s Reliance Industries Ltd. is set to miss partner BP Plc’s target for raising output from India’s biggest natural gas field by at least one year because the government hasn’t approved its plans, three people with direct knowledge of the matter said.
A government panel has delayed endorsing a plan to spend $1.5 billion to develop four discoveries in the KG-D6 block off India’s east coast, they said, asking not to be identified because the matter is confidential. The approval, which BP expected last month, would have allowed sub-sea work to be done from December to March, when waters are calmer, the people said.
Output at the field in the Bay of Bengal has been declining since 2010, and BP Chief Executive Officer Robert Dudley said in September that production may rise after the partners develop new fields by 2014. Europe’s second-largest oil company last year completed a $7.2 billion acquisition of a 30 percent stake in 21 fields operated by Mumbai-based Reliance.
“There has been a setback for both Reliance and BP after all the euphoria of the big deal,” said Walter Rossini, who helps manage 200 million euros ($260 million) in Indian equities, including Reliance shares, at Milan-based Aletti Gestielle SGR SpA. “Delays are taking longer than anticipated. Targets will probably be missed and that’s not good news.”
At a meeting with Oil Minister S. Jaipal Reddy in Doha in December, Dudley expressed concern about the delay and in a subsequent letter said the inability to commence sea-bed surveys that month would push back production plans by a year, the Press Trust of India reported yesterday, citing the BP CEO’s letter.
Oil Secretary G.C. Chaturvedi and industry regulator S.K. Srivastava didn’t answer two calls each to their mobile phones seeking comment today. Sashi Mukundan, head of BP’s India unit, couldn’t be reached by telephone at his office and didn’t respond to an e-mail seeking comment. Reliance spokesman Tushar Pania didn’t immediately reply to questions sent by e-mail.
Reliance slumped 35 percent last year, the most since 2008, as output from the KG-D6 deposit dropped. The stock rose 2.7 percent to 725.80 rupees at 3:08 p.m. in Mumbai, matching the increase in the benchmark Sensitive Index.
Gas production at the field has fallen to a two-year low and is less than half the peak rate of 80 million cubic meters a day projected by the government and Reliance, slowing profit growth at the company.
The panel comprising officials from the oil ministry and the Directorate General of Hydrocarbons, which regulates exploration and production of oil and gas, on Dec. 2 rejected the plan to develop the satellite fields and asked Reliance and BP to rework it, one person said. The companies sought a meeting on Dec. 27 to review the decision, which was canceled a few hours before it was due to start, the person said.
The government panel is scheduled to meet in New Delhi today, according to the person.
Reliance and BP would need at least four weeks after getting approvals to mobilize ships, rigs and workers, the three people said. Even if the development plan is approved today, it would be too late to complete the sub-sea work by March and production would only start by 2015, one person said.
The panel is also yet to approve spending plans for the main producing areas of the KG-D6 block for the year ending March 31, according to the three people. This has held up maintenance work at the producing wells, they said.
Reliance produces about 38 million to 39 million cubic meters a day of gas from three areas in the KG-D6 block, Oil Secretary Chaturvedi said Dec. 21. Output from the area was about 45 million cubic meters a day in the three months ended Sept. 30 and 60 million cubic meters in June last year.
Five of 18 wells at the D1 and D3 fields in the block have stopped producing gas, Minister Reddy said in parliament Dec. 15. Reliance has drilled 22 wells out of 31 targeted by March and the company has said it is unable to find drilling locations because of geological complexities, the minister said.
Reliance and BP plan to develop another four discoveries in the KG-D6 block called the R-Series, which have the potential to produce as much as 25 million cubic meters a day of gas, the people said. The regulator hasn’t approved these four finds as commercially viable and after it is endorsed, the partners may take at least one year to prepare a development plan, two of the people said.
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