Mumbai/New Delhi: The petroleum ministry said in a statement issued late on Tuesday that it would expedite clearances sought by Reliance Industries Ltd (RIL) for some of its wells in the D6 field in the Krishna-Godavari (KG) basin and its Mahanadi basin block, effectively signalling a softening of its stand regarding the company.
The ministry said it will recommend to the “competent authority” issues such as “declaration of commerciality” of the wells. 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 has been asking for the approval of budgets and work programmes for the D6 field for 2010-11, 2011-12 and 2012-13.
The move comes at a time when the petroleum ministry and Mukesh Ambani-controlled RIL, its British partner BP Plc., Hardy Oil and Gas 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 KG basin.
An RIL spokesperson hadn’t responded to Mint’s queries as of press time.
The statement came in the wake of a meeting of petroleum minister S. Jaipal Reddy, RIL executive director P.M.S. Prasad and BP India head Sashi Mukundan on Friday regarding speedy clearances for the company. BP has a 30% stake in 21 of the RIL’s blocks, including KG-D6.
PTI reported on Tuesday that RIL and BP “have warned that eastern offshore KG-D6 gas fields will stop producing in 2015 unless the government approves investments needed to keep the nation’s largest gas fields alive.”
“It was agreed at the meeting to recommend to the competent authority on two issues, namely the declaration of commerciality of certain wells in NEC 25 (the block in the Mahanadi basin) and KG-D6. Company representatives were told that the ministry would consider extension of appraisal period to facilitate declaration of commerciality at an early date. It was also agreed that quicker approvals for two blocks in the Cauvery basin as per the extant government policy would be given,” the statement read.
A Mumbai-based analyst with a foreign brokerage, who did not want to be named, said it was “a clear positive for RIL” but added that it remained to be seen how quickly the approvals came through for RIL. “It is a clear sentimental positive. The biggest benefit is that both of them (the ministry and the company) have softened their stand and are willing to find some common ground on this. It is still a wait-and-watch game because what really matters is how fast the government actually moves on these approvals,” he said.
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 into 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 below 30 million standard cubic metres per day (mscmd) and is projected to further fall to 20 mscmd by next year.
The KG-D6 block is at the centre of the controversy after the Comptroller and Auditor General of India (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 Fali 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 the costs means the revenue to be shared with the government drops correspondingly.
The ministry in its statement also said, “The contractors were also informed that denial of access to records to CAG was adversely commented upon in previous audit by CAG. It was also brought to their notice that CAG recommended withholding of sanction to work plans and bud-gets if access to records is denied to CAG. Therefore, company representatives were requested to make all records and accounts of the KG-D6 block available to CAG as provided for in the production sharing contract.”
PTI contributed to this story.