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Govt asks RIL to surrender 81% of KG-D6 gas block

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Reliance Industries (RIL) results beat estimates, Q3 net profit at Rs. 5,511 crore
Reliance Industries (RIL) results beat estimates, Q3 net profit at Rs. 5,511 crore

New Delhi –  The government Wednesday asked Reliance Industries to give up 81 percent of its KG-D6 gas block, including five discoveries, as the time allocated for producing from them had expired.

“I think the notice (for relinquishment) has gone. If it hasn’t yet gone, it will go today. We plan to send them the notice today,” Oil Minister M Veerappa Moily said here.

The Oil Ministry wants RIL and its partners BP plc of UK and Canada’s Niko Resources to give up 6,198.88 square kilometres out of a total 7,645 sq km area in KG-D6 block, by retaining only the portions where regulator DGH-recognised discoveries have been made.

The area sought is more than 5,367 sq km area that RIL had offered to relinquish and includes five discoveries – D4, D7, D8, D16 and D23 for which the Directorate General of Hydrocarbon (DGH) had opined that RIL missed deadlines for submission of investment plans.

“We discussed the issue threadbare and after analysing it have reached to this conclusion that they (RIL) need to relinquish certain area as per the Production Sharing Contract (PSC),” he said. “We have followed a transparent process where we gave them due opportunity to present their case.”

The five discoveries hold 0.805 trillion cubic feet of reserves, or about one-fourth of the restated reserves in the currently producing Dhirubhai-1 and 3 (D1&D3) fields in KG-D6 block, and are worth USD 10 billion at current imported cost of gas.

Also, the Oil Ministry will be moving Cabinet soon to deny the new USD 8.4 per million British thermal unit price for gas from D1&D3. This would be done on the grounds that fall in output to 10 million standard cubic metres per day from 54 mmscmd achieved in March 2010, instead of rising to projected 80 mmscmd, was due to RIL’s failure to drill the requisite number of wells.

“The gas pricing note to the Cabinet will go shortly,” he said.

RIL will be allowed the new price only if its arguments of geological complexities being responsible for the fall in production are proved.This is the second penalty that is being sought to be imposed on RIL. The ministry has already moved to deny USD 1.8 billion of its cost for the same reasons.

The Ministry has, however, not indicated how it will compensate RIL for the period when it is forced to sell gas at USD 4.2 rate if it is proved at alater date that the company had not deliberately suppressed the output.

Officials said the 1,4462.12 sq km area that the Ministry is allowing RIL to retain includes the currently producing D1&D3 gas fields and D26 (MA) oil and gas field.

Besides, a cluster of four satellite fields (D2, D6, D19 and D22) and two other significant discoveries (D42 and D34) for which investment plans have already been approved, are also being allowed to be retained by RIL.

The area allowed to be retained also includes three yet-to-be-confirmed discoveries of D29, D30 and D31 with 0.345 Tcf of reserves, as Moily felt DGH had been unfair in denying their existance.

Moily agreed with RIL’s contention that the company should be allowed to conduct tests to confirm the three finds.

RIL as per the contractual requirement of retaining only the area where discoveries have been made, had offered to give up or relinquish 5,367 sq km out of the total 7,645 sq km area in the Bay of Bengal KG-D6 block.

However, the DGH wanted another 1,130 sq km of area, which contained these 8 finds, to also be taken away from RIL on the grounds that the timeline to develop the fields had expired.

RIL and BP officials on September 18 made a detailed presentation to Moily, Oil Secretary Vivek Rae and DGH Director General R N Choubey contending that they had not deviated an inch from the Production Sharing Contract (PSC) and had the right to retain the 1,130 sq km area.

“I have acted in all fairness” in deciding the contractor should be asked to relinquish corresponding areas pertaining to 5 discoveries (814 sq km) with immediate effect as RIL had not submitted the field development plan for these within the stipulated timeframe, Moily said.

He wanted this area to be to be offered for bidding on a priority basis.

For the balance three finds covering an area of 316 sq km, Moily agreed with RIL-BP that the DGH had not been insisting on drill stem test (DST) for confirmation of a discovery in the past and had decided to rake up the issue of absence of DST in case of D29, D30 and D31 finds after 8 months of commerciality documents being submitted and around 40 months from the discovery.

RIL had submitted declaration of commerciality (DoC) for three finds within time and there was delay on the part of the DGH in reviewing them.

So, Moily decided to allow the contractor to conduct DST now and review the DoC on the basis of outcome of these tests.

Depending on the outcome, the matter may be taken up before the Cabinet Committee on Economic Affairs (CCEA) for its information, he added.

RIL has till date made 18 oil and gas finds and one oil discovery in the eastern offshore KG-D6. Of these, D26 or MA oil discovery started pumping oil in September 2008 while D1&D3 gas fields were put on production in April 2009.

The government approved three separate field development plans for six discoveries (D2, D6, D19, D22, D42 and D34).

So, the total area of 1,446.12 sq km (corresponding to discoveries D1, D3, D26, D2, D6, D19, D22, D42, D34, D29, D30 and D31) is at present being considered as discovery and development area out of the contract area of 7,645 sq km.

The remaining 6,198.88 sq km is to be relinquished by RIL.

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