Niko Resources Ltd., Calgary, says uncertainty regarding natural gas price premiums in India could cause deferral of development of certain discoveries.
The company on Nov. 4 provided an analysis on the impact of India’s new domestic gas price policy. According to India’s Press Information Bureau, a premium will be given on gas prices for all discoveries in deep water, ultradeep water, and high pressure and high temperature (HPHT) areas (OGJ Online, Oct. 21, 2014).
“The applicability of the premium to existing undeveloped discoveries in the D6 and NEC-25 blocks, such as the discoveries included in the approved plans of development for the R-Cluster and Satellite Areas, remains to be clarified,” Niko said.
“The development of these discoveries is dependent on the future long-term price outlook for gas sales from these projects and the uncertainty in this outlook could mean that development of these discoveries could be deferred.”
Niko said it is evaluating plans for the undeveloped proved and probable reserves in the D6 and NEC-25 blocks (OGJ Online, Feb. 15, 2013). “Material reductions in the reported reserves, future net revenues and net book values for these blocks could result,” Niko said.
New guidelines issued by the government for domestic natural gas indicate that the initial price for the period of Nov. 1, 2014, to Mar. 31, 2015, is $5.05/MMbtu based on the gross calorific value of the sales gas. “This price equates to approximately $5.61/MMbtu based on the net calorific value of the sales gas, an increase of approximately 33% from the $4.20/MMbtu that natural gas sales had been priced at prior to the adoption of the guidelines,” Niko said.
Niko said the price is subject to certain exceptions, and one exception “is the D1 D3 fields in the D6 Block where a dispute between the contractor group” and the government of India on the recovery of certain costs is under arbitration.
The guidelines indicate that the contractor group will be paid the earlier price of $4.20/MMbtu. The difference between the revised price and the earlier price of $4.20/MMbtu will be credited to a gas pool account.
“Whether the amount so collected is payable or not to the contractors of this block would be dependent on the outcome of the award of the pending arbitration and any attendant legal proceedings,” Niko said.
