The Oil Ministry has once again asked Reliance Industries to withdraw its arbitration notice against the proposed move to curtail cost-recovery at its KG-D6 gas fields, saying no dispute on the issue has arisen as yet.
"There is no controversy or difference or dispute or disagreement, etc, whatsoever, that is said to have arisen between the parties to the Production Sharing Contract on the manner and grounds on which the cost recovery is sought to be done under the PSC which will lead to invoking of arbitration," the ministry wrote to RIL earlier this month.
Previously, the ministry had on January 25 written to RIL asking it to withdraw the arbitration notice.
RIL had on November 23, 2011, slapped the notice upon learning that the ministry was moving to restrict cost- recovery in the flagging KG-D6 block after production dipped from 61.5 million cubic meters per day achieved in March 2010 to about 35 mmcmd, instead of rising to 70 mmcmd as planned.
The ministry's technical advisor, the DGH, advised disallowing $1.235 billion of the $5.7 billion expenditure already made, as RIL has drilled and completed only 18 wells against agreed 31 wells in the block, resulting in lower gas output.
The ministry said RIL's assumptions of a move to restrict cost-recovery are "based on (its) apprehensions and conjectures."
KG-D6 gas production averaged 48.13 mmcmd against the target of 53.40 mmcmd in 2010-11 and 38.61 mmcmd (up to October 31, 2011), compared to the target of 61.88 mmcmd, in 2011-12. Production of 80 mmcmd was envisaged in 2012-13.
RIL says it has not drilled the committed wells as the reservoir has not behaved as previously predicted and output dipped due to a fall in pressure and water and sand ingress in wells.
Sources said that before the ministry could write to RIL on restricting cost-recovery, the company slapped the arbitration notice.
RIL appointed S P Bharucha, former Chief Justice of the Supreme Court, as its arbitrator and had asked the ministry to appoint its arbitrator within 30 days.
The ministry had days before the December 23 deadline expiry sought a one-month extension to respond to the notice and after receiving the Law Ministry's opinion, it on January 25 wrote to the company saying its claims are based on surmises, conjecture and apprehensions and so it should withdraw the notice.
RIL on February 2 wrote it cannot withdraw the notice and said if the ministry fails to appoint its arbitrator it would take suitable legal recourse.