Govt takes back 80% of RIL’s D6 block

The Government has communicated to Reliance Industries Ltd and its partners BP and Niko Resources that it is taking back almost 80 per cent of the 7,745-sq km Krishna Godavari Basin D6 block from them. This, however, does not come as a surprise to the companies as it is part of the exploration process, where, after every phase, 25 per cent of the area has to be surrendered. This area, which also had five small discoveries, would have been surrendered earlier, but for the rig moratorium and the debate whether the entire block was to be treated as a discovered area.

Relax timelines

But, now with the timeline having expired, the Government has taken it back. “It won’t be appropriate to relax the timelines. So, we have issued the order,” Petroleum Secretary Vivek Rae told media persons. The explorers have made five hydrocarbon discoveries (D4, D7, D8, D16 and D23) in the 6198.88-sq-km that would have to be relinquished now.

RIL A DEFAULTER?

A parliamentary committee has asked the oil ministry to declare Reliance Industries a defaulter’ for the fall in gas output from the KG-D6 block, escalating the controversy around the depleting field to a new level as default by the operator of the filed can lead to termination of the contract. The standing committee on petroleum and natural gas seeks changes in the gas allocation policy, which has starved the power sector of supplies from D6; opposes the Rangarajan formula that includes high LNG rate in calculating gas prices; and questions the strategy of trying to attract investment on the basis of high prices because the previous increase in gas rates did not lure investors. It also backs the state’s demand for a share in gas output and royalty from offshore fields. The report calls for stern action against Reliance. The company had argued that output fell because the reservoir behaved differently from what was anticipated but the oil ministry has blamed the company, saying that production plummeted because it did not drill the promised number of wells. After consulting an expert, the ministry disallowed reimbursement of $1 billion if field development costs, prompting RIL to initiate arbitration. “The committee is of the opinion that nonadherence by the contractor (Reliance) to approved field development plan should be construed as “default” and not just failure and remedial action by the ministry in this regard must be premised on “default” by the contractor and not only “failure”, it said. This has serious implications for KG-D6, which has been showcased as a grand success of India’s effort to invite companies to look for oil and gas under the New Exploration Licensing Policy (NRLP). During discussions with the committee, an oil ministry official observed: “Default” is punishable only by termination of the contract. There is no other remedy.” Output from the field was expected to rise to nearly 87 mmscmd in 2012-13 from about 34 mmscmd in 2009-10, but it fell sharply instead of rising, the panel observed. The Directorate General of Hydrocarbons (DGH) had commissioned a study by an expert on the decline in natural gas production in KG-D6. He concluded that reserves, as estimated earlier, were still available, that remedial measures would help increase gas production and shortfall in gas production was due to not drilling adequate number of wells. Reliance has questioned that credentials of the expert. The company, along with its partner BP PIC says the reserves turned out to be lower than expected because of geological complexity. Drawing the attention of the government to the Supreme Court’s observation that natural resources are national assets and must be utilized for larger good of the people, the committee urged to the ministry “to take corrective measures to increase the natural gas production from KG-D6 basin as observed in the DGH study.”

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