BP writes off $830m in India
BP has written down the value of its investment in eastern offshore KG-D6 block by $830 million , following lower-than-expected gas price hike.
Announcing its fourth quarter and full 2014 results, BP said, “Third quarter, fourth quarter and full-year 2014 include write-offs of $375 million, $20 million and $395 million respectively relating to block KG-D6 in India. In addition, impairment charges of $395 million, $20 million and $415 million for the same periods were also recorded in relation to this block.” The company did not explain the reasons for the write-off and impairment charges.
BP in 2011 bought 30% interest in Reliance Industries’ eastern offshore KG-D6 as well as 20 other oil and gas exploration blocks for $7.2 billion. Bulk of this was for the producing block of KG-D6 and gas discovery area of NEC-25. In the third quarter result announcement on October 28, 2013, BP had said the write-down arose “as a result of uncertainty in the future long-term gas price outlook, following the introduction of a new formula for Indian gas prices, although we do see the commencement of a transition to market-based pricing as a step in the right direction”.
The government had on October 18 last year approved a new formula for pricing of all domestic gas. The rate, when the formula comes into effect from November 1, would be $5.61 per million British thermal unit (mBtu) as against current $4.2.
The price is lower than $8.4 approved by the previous UPA government and general expectation of a rate around $6.5 after some deductions from that price.
Both BP and RIL have been advocating market-linked gas pricing and had initiated an arbitration against the government for not revising rates from the due date of April 1, 2014.
The $4.2 per mBtu rate, fixed in 2007, was for the first five years of production from KG-D6 fields. KG-D6 fields started gas output from April 1, 2009.
RIL is the operator of KG-D6 block with 60% stake while the balance 10% is with Canada’s Niko Resources. Output at KG-D6 block has fallen over 80% to below 13 million standard cubic meters per day as unanticipated water and sand ingress shut wells after wells.
Besides write-off at KG-D6, BP also wrote off $845 million in the value ascribed to block BM-CAL-13 offshore Brazil, following the acquisition of upstream assets from Devon Energy in 2011. This write-off, it said, was “as a result of the Pitanga exploration well not encountering commercial quantities of oil or gas.”