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The British oil major, BP, has said it would “work with the new Indian government” on the ‘premium’ prices that the government has promised for natural gas produced from future discoveries in tough areas.
On October 18, the Government of India came up with a new formula for gas pricing, effectively raising the price at which gas could be sold by about $ 2 per MMBTU. In the statement of that day, it said, “For all discoveries after this decision, in Ultra Deep Water Areas, Deep Water Areas and High Pressure-High Temperature areas, a premium would be given on the gas price to be determined as per the prescribed procedure.”
In a conference call with investors, BP’s Chief Financial Officer, Brian Gilvary, said on Wednesday that there is “uncertainty around what those premiums would look like”.
BP is a partner of Reliance Industries in the D6 gas field in the Krishna-Godavari basin of Bay of Bengal, off Andhra Pradesh coast. Terming the region as “a terrific resource”, Mr Gilvary said that the development of the resource is crucial to the growth of Indian gas. “The question mark going forward is more around actually understanding what the various statements meant around premiums associated with new discoveries and how they will actually pan out going forward,” he said, answering an analyst’s question.
“We’ve taken some pretty conservative assumptions around what we believe the premium would look like but there is so much uncertainty around that it's impossible to say at this point,” he said, citing the uncertainty as the backdrop to the write-off of $ 770 million from the value of its investments in the D6 block.
In the earnings press release the company issued on Wednesday, it said that the $ 770 million “arises 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.
Going by the formula, BP has assumed it would get a price of $ 6.7 MMBTU, compared with $ 4.2 earlier.
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