Mumbai/New Delhi: In a softening of the petroleum ministry’s stand on Reliance Industries Ltd (RIL), the management committee for the D6 field in the Krishna-Godavari (KG) basin on Tuesday conditionally approved the budget and work programmes for the field that have been pending for the last three years.
In addition, the issue of “declaration of commerciality” of the company’s three wells in its KG block was also resolved, subject to RIL meeting certain conditions.
In lieu of this, RIL agreed to provide the Comptroller and Auditor General of India (CAG) access to records of the KG D6 block. The government auditor had adversely commented upon denial of access to records in its previous audit. CAG had recommended withholding approval for work plans and budgets if access to the records was denied.
Output woes: An RIL platform in the KG basin. Over the last few quarters, gas production from KG D6 has progressively fallen.
The KG D6 block became the centre of a controversy after CAG said in a report that RIL had breached some terms of its contract with the government. The oil ministry then sought the views of the law ministry, which, in turn, passed on the request to the government’s law officer Rohinton Nariman, after RIL failed to meet its own target for gas generation from the KG D6 offshore block, despite having claimed associated costs as deductions before estimating the profit to be shared with the government. Such front-loading of costs means the revenue to be shared with the government drops correspondingly.
“All agenda items were considered and all major issues have been resolved. The issues of work programme, budgets and declaration of commerciality has been resolved. There were some minor changes in the budgets and minor procedure to be followed for the declaration of commerciality. All details will be provided to CAG by RIL,” said a senior petroleum ministry official, requesting anonymity.
This declaration is important because it establishes whether a discovery is economically viable or not, and in its absence an explorer can’t proceed with its so-called work plan. RIL had been asking for the approval of budgets and work programmes for the D6 field for 2010-11, 2011-12 and 2012-13.
The Directorate General of Hydrocarbons (DGH), a body under the ministry of petroleum, heads the management committee, which has representation from the ministry, the block operator and consortium members. This committee signs off on all issues related to the block.
A file photo of Reliance Industries Krishna Godavari Water Basin
While an RIL spokesperson declined to comment on the issue, an executive requesting anonymity said that Tuesday’s development was a positive for the company. The commitments made by RIL and the government, and the conditions were mutually discussed and agreed at the management committee meeting held on Tuesday.
“The commercial viability of the three new discoveries at KG D6 getting approved will help us proceed with the formulation of the integrated field development plan, which will then be submitted to the government for approval,” this executive said.
The work programme and annual budgets were pending for the Dhirubhai-1 and 3 gas fields, the MA oilfield and the R-Series gas field in the D6 block. The commerciality of three gas satellite finds—D29, 30 and 31—was earlier rejected by DGH. The appraisal period will now be extended for these wells.
The move comes at a time when the petroleum ministry, Mukesh Ambani-controlled RIL, its British partner BP Plc, and a subsidiary of Canadian joint venture partner Niko Resources Ltd are involved in a dispute over the recovery of costs for developing gas fields in the KG basin.
PTI reported oil minister S. Jaipal Reddy, who was not part of the management committee meeting, as saying that RIL-BP would get conditional approval to develop gas finds in the KG basin block.
“Whatever the contractor needs technically, administratively to raise production, we will do. Approvals will be given subject to conditions,” Reddy said without elaborating, according to PTI.
Interest in India’s hydrocarbon sector has been diminishing, and foreign firms are planning to exit their oil and gas exploration and production businesses in India. A part of the problem is the failure of some projects to obtain government clearances.
RIL and the government entered a production-sharing contract to develop the KG D6 basin on 12 April 2000. Over the last few quarters, gas production from KG-D6 has progressively fallen and is below the level it should have reached by now. KG D6 output this week dropped to 29 million standard cubic metres per day (mscmd) and is projected to further fall to 20 mscmd by next year.
RIL shares ended at Rs 783.70 on BSE on Tuesday, down 0.20% from the previous close, while the 30-share Sensex rose 1.08% to end at 17,601.78 points.
“It is a win-win situation for both the government and RIL, as the standstill had ended and the ball has been set rolling towards improving gas production,” said Alok Deshpande, an oil and gas sector analyst with Elara Securities (India) Pvt. Ltd, the Indian arm of a UK-based brokerage firm. “Being a party to the production-sharing contract, the government’s share of profits was also at stake and delaying necessary approvals further wasn’t in their best interest. RIL has also taken a step in the right direction by agreeing to share the KG D6 accounts with CAG, to help take things forward.”
“Securing approvals for the new discoveries in KG D6 will also help RIL formulate the integrated field development plan with BP at the earliest,” he said.
PTI contributed to this story.