Extra KG revenues of BP, Niko may be kept in escrow account

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The government will consider a proposal to set up an escrow account to park additional revenues accruing to British Petroleum & Niko Resources from the KG D6 field after the gas price is doubled to $8.4 per mmBtu from April 1.

British Petroleum and Calagary-based Canadian oil company Niko Resources are partners with Mukesh Ambani’s Reliance Industries (RIL) in the KG D6 gas field. If the plan takes off, both will park the additional revenues in an escrow account till a pending dispute over hoarding of gas is settled.

The BP- Niko duo holds 40 per cent stake in the D6 field, which has become a subject of political controversy, especially after the Union cabinet decided to double gas price to $8.4 per million British thermal unit.

RIL, which owns 60 per cent stake in the D6 field, will provide a bank guarantee against the penalties payable in case the government proves its charges of gas hoarding by the company in the east coast venture.

“We will take a call on setting up the escrow account for BP and Niko in a fortnight,” a top oil ministry official said on condition of anonymity.

The official also confirmed that there was no directive from the election commission to keep in abeyance the UPA government’s decision to double gas price to $8.4 per mmBtu beginning next financial year. RIL, BP and Niko Resources were to collectively provide bank guarantees worth $1.2 billion pending settlement of a case relating to alleged hoarding of gas in Dhirubhai – 1 & 3 (D1 & 3) gas fields beginning 2011.

In case the government approves a proposal to allow additional revenue to BP and Niko Resources into a dedicated escrow account after the price is doubled, then RIL may have to provide irreversible bank guarantees worth $720 million against the 60 per cent holding in KG D6.

On December 20 last year, CCEA approved the gas price hike subject to resolution of the hoarding issue till when the promoters were to provide bank guarantees against additional cash flows. Prime minister Manmohan Singh has not conceded to the demand of Aam Aadmi Party chief Arvind Kejriwal to keep in abeyance the decision on KG basin gas price revision. Kejriwal had ordered a probe into the gas price hike and named former oil minister Murli Deora, incumbent minister Veerappa Moily and others involved in taking the decision.

Oil ministry officials confirmed to FC that the government would notify the enhanced gas price by this month end. As gas price will rise from $4.2 per mmBtu to $8.2-8.4 after the Rangarajan pricing formula comes into effect from next financial year, the bank guarantee – being the difference of current and new price –for every trillion cubic feet of gas production will translate into $4 billion.

Bank guarantee for the entire remaining recoverable gas reserves of about 0.75 trillion cubic feet in D1 & D3 fields would amount to $3 billion. At current production level of about 8 million standard cubic metres per day, D1 & D3 will produce about 0.3 trillion cubic feet in the next three years — the time that may be needed to settle the issue of gas hoarding charges.

The bank guarantee was worked out for 0.3 tcf at $1.2 billion, oil ministry officials said. Of this, the share of RIL that holds 60 per cent stake in KG-D6 will come to $660 million. BP has 30 per cent interest and the remaining 10 per cent is with Niko, which prefer the additional revenues to be kept in an escrow account.


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