In an unprecedented move, the petroleum ministry has sanctioned taking “scrupulous” action against Reliance Industries for natural gas output from its KG-D6 fields falling below the target.
Contrary to the Production Sharing Contract (PSC), the ministry has decided to disallow expenditure incurred in constructing production/processing facilities at Dhirubhai-1 and 3 gas fields in KG-D6 block that are currently under utilised/have excess capacity because of falling output.
Sources privy to the decision, taken by the ministry earlier this month, said based on the solicitor general’s opinion, concurred by Law Minister Salman Khurshid, $1.85 billion — out of the $5.694 billion investment already made — will be disallowed and arbitration initiated to recover that from RIL.
Petroleum Minister S Jaipal Reddy on November 9 instructed “scrupulous” action to be taken against RIL. Sub-surface issues like fall in pressure and water ingress have led to fall in output at D1&D3 from 54 million standard cubic metres per day, achieved in March 2010, to under 35 mscmd currently instead of rising to the targeted 61.88 mscmd.
According to the PSC, an operator has right to recoup or recover total of the expenditure incurred on finding and producing from the revenues earned from sale of oil and gas before profits are split with the government. Such expenditure is approved by the government not once but twice — first at the time of approving field development plan and then every year at the time of approving annual budget for the fields.
To alter this cost recovery, an amendment to the PSC is required, which can be done only by Parliament.
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Sources said the ministry’s decision is unprecedented because it was accepted world-over that field behaviour, that cannot be accurately predicted and operators cannot be held responsible for variations, as evident from several fields of state-owned Oil and Natural Gas Corp (ONGC) that missed targets by miles.
Numaligarh Refinery was built and refineries at Bongaigaon and Barauni expanded in the late 1980s based on projection of 11-12 million tonnes of output from Assam fields of ONGC and Oil India. ONGC’s output never crossed 1.5 million tonnes against a target of six-seven million tonnes, while OIL was better off producing three million tonnes as compared to five million tonnes target. The shortfall was made up by diverting crude oil from the eastern offshore Ravva fields.