New Delhi: Concerned over fall in output at India’s biggest gas field, oil regulator DGH will summon Reliance Industries (RIL) to seek explanation on its failure to meet drilling commitments that were a few years back used to justify over $8.8 billion expenditure on KG-D6 field.
Reliance in 2006 won government nod to invest $8.836 billion on its eastern offshore KG-D6 field after promising to produce 61.88 million cubic meters per day of gas from 22 well by April 2011 and 80 mmscmd from 31 wells by 2012.
But situation on ground has been markedly different with Reliance producing about 42 mmscmd from 16 out of the 18 wells drilled so far on Dhirubhai-1 and 3 (D1 and D3) field in the KG-D6 block, Directorate General of Hydrocarbon (DGH) director general S. K. Srivastava told the new agency.
Another 8 mmscmd is being produced from MA oilfield in the same block, taking the total output to around 50 mmscmd as against committed 69.88 mmscmd, he stated after a review meeting oil ministry had called on Thursday evening.
“The reasons they have so far given (for not fulfilling their commitment) are far from convincing. We intend to call Reliance and its partner Niko Resources (of Canada) in first week of May to explain failure of meet commitments,” he said.
Reliance says output has dipped after touching 61.5 msmcmd achieved in March last year on falling pressure at wells and that drilling more wells will not help the problem as it will tap the same resource.
Srivastava said Reliance has not kept up with the approved field development plan (FDP) but stopped short of saying what action the government can take against it.
“We will come to that stage (imposing penalties or taking action) after hearing Reliance,” he said.
Reliance has drilled two more wells but not yet connected them to production system, he said. DGH wants Reliance to drill 11 wells this fiscal, including two wells that were to be drilled last year.
In 2007, allegations of gold-platting or inflating the cost were levelled against Reliance when it jacked up the investment required for developing D1 and D3 gas field to $8.8 billion from $2.47 billion proposed in 2004.
Reliance, which is allowed to recover all capital and operating expenditure from sale of gas before sharing profits with the government, had denied all allegations saying cost of drilling 31 wells had gone up since 2004.
It had also used the high cost involved to justify the $4.205 per million British thermal unit price fixed for natural gas produced from KG-D6 fields.
Reliance holds 90% interest in the block KG-D6, where 18 gas and one oil discovery has been made. D1 and D3 gas and MA oil finds have so far been put into production. Niko has the remaining 10% in the block.
DGH has refused to approve investment budget for KG-D6 unless Reliance agrees to drilling the 11 committed wells even as the latter has projected that output from D1 and D3 fields will fall to 38 mmscmd from current 42 mmscmd in 2012-13.
As per the approved FDP, production in the block was to go up to 86.92 mmscmd in 2013-14 and decline in output to set in from 2018-19. The field is expected to produce gas for a total of 13 years, i.e. till 2022.
D1 and D3 have seen output fall from 54 mmscmd achieved in March 2010 to 42-43 mmscmd at present. The MA oilfield in the same block is producing about 8 mmscmd of associated gas. Together, the current output from KG-D6 stands at 50 mmscmd.
Sources said that 18 wells have been drilled so far and completed out of 22 development or production wells approved in Phase-I of the FDP for the D1 and D3 fields. Two more wells are complete, but not yet connected to the production system.
The total investment in KG-D6 to date is $7.8 billion.
Reliance currently sells 14 mmscmd of gas to fertilizer plants, 24 mmscmd to power plants and the remaining 13 mmscmd to other sectors like sponge iron plants, LPG, city gas distribution (CGD), petrochemical plants and refineries.
It produces about 17,000 barrels of crude oil per day from the MA field. Reliance has so far made 19 oil and gas finds in Krishna-Godavari Basin Block KG-DWN-98/3, or KG-D6, which it won in consortia with Niko Resources of Canada under the first round of the New Exploration Licensing Policy (NELP) in 2000.
Of these, two gas (D1 and D3) and one oil (D-26 or MA) discovery have been put on production. D1 and D3 commenced output from 1 April, 2009, while MA started production from 17 September, 2008.
Reliance has been forced to restrict production from the MA oil field to about 17,000 barrels per day due to high water and gas output, sources said.
The MA field had five oil producing wells and one gas producer well. Furthermore, four discoveries have been declared commercially viable, while the FDP for nine satellite finds was submitted on 14 July, 2008, for approval.
The FDP for the nine satellite fields was not found techno-economically viable and Reliance submitted an Optimised FDP (OFDP) for four of these nine satellite fields on 29 December, 2009. The OFDP is under evaluation by the DGH.
One discovery is under appraisal and Reliance has so far not submitted a declaration on the commerciality of two other finds.