As it gets ready to take action against Reliance Industries for dip in output at KG-D6 fields, the petroleum and natural gas ministry has told a Parliamentary Committee that the production sharing contract for the block does not provide for penalty in case of shortfall in production targets.
"There are no specific penalty stipulations in PSC in case of shortfall in achieving production targets envisaged in either the approved Field Development Plan or Annual Work Programme and Budget, except termination of the contract," the ministry told the Standing Committee on Petroleum and Natural Gas, whose report was tabled in Parliament last week.
Irrespective of the submission made to the committee, the ministry wants to limit the amount of expenditure RIL can recoup in proportion to the gas production from KG-D6, as it feels the 40 per cent drop in output was because the company did not drill the committed number of wells.
Fearing of such a move, RIL had on November 24 slapped an arbitration notice seeking to address the issue legally. The Ministry last week sought time till January 31 to reply to the notice.
The panel in its report expressed surprise at the lack of specific penalty stipulations in PSC and asked the government and its upstream technical arm, DGH "to review PSC contracts entered with various operators and incorporate stringent provisions therein for any breach in approved plan."
The PSC allow operators to recover 100 per cent of their exploration and production costs and do not link cost-recovery to output.
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The Ministry told the panel that annual production targets are first approved by the operator (RIL)-led operating committee (OC). These are reviewed technically by DGH and "subsequently deliberated, reviewed and approved in the Management Committee" which comprises representatives of not just the operator but also the ministry and DGH. Gas output from Dhirubhai-1 and 3 gas fields in the KG-D6 block has fallen from 54 million cubic meters per day achieved in March 2010 to 32.94 mmcmd this month instead of rising to planned 61.88 mmcmd. RIL has so far drilled 22 well on the fields instead of 31 committed by April 2012. DGH, the ministry told the panel, is asking "the operator (RIL) to expeditiously drill wells in line with approved field development plan (FDP) during the year 2011-12, which may help to revive the falling gas production from these fields."
The company had to shut down four wells due to water ingress/other problems, it told the panel adding the DGH was carrying out well-wise performance analysis to ascertain the reasons of decline in gas production from existing wells.