OilMin slaps $380 mn additional penalty on RIL for output shortfall

Production from the D6 block dropped considerably after a peak of 62 mscmd in 2010

The Dharmendra Pradhan-led petroleum ministry has slapped an additional penalty of $380 million (Rs 2,550 crore) on Reliance Industries (RIL) for the fall in natural gas production from its D6 block in the Krishna-Godavari (K-G) basin.

On June 3, the ministry revised its cumulative disallowance of cost recovery to $2.756 billion up to 2014-15, compared to a cumulative $2.376 billion till 2014-15. The government share of additional profit petroleum (calculated after deducting the costs incurred by the company in development and production) on a cumulative basis also saw a rise of $51.6 million, to $246.9 million as of June this year, compared to $195.3 million till 2013-14.

In a clarification to the BSE, the Mukesh Ambani-led Reliance stated the government had already collected $81.7 million of the additional profit petroleum claimed. It said it and its partners, British Petroleum and Niko Resources, denied the claims made by the ministry, now part of an ongoing arbitration.

On an annual basis, the government revises the total cost it proposes to disallow and consequently aggregates the figure with those of previous years. It also demands additional profit petroleum as government share. The dispute with RIL started in 2011 and is currently under arbitration, in accordance with the production sharing contract.

Production from the block, discovered in 2002, dropped considerably after a peak of 62 million standard cubic metres a day (mscmd) in 2010. Production from the D1 and D3 fields, which started in 2009, has fallen considerably to about eight million mscmd.  Initially, the output was supposed to be 80 mscmd but the output shortfall in 2010-11 was five mscmd, in 2011-12 at 28 mscmd, in 2012-13 at 55 mscmd and in 2013-14 at 66 mscmd, further rising in 2014-15.

Following which, the government had disallowed $457 million on cost recovery in 2010-11, another $548 million in 2011-12, $792 million for 2012-13, $579 million for 2013-14 and $380 million for 2014-15.

The initial estimate of gas from the basin was 3.81 trillion cubic ft (tcf) in 2004 and later raised to 10.03 tcf. However, the three partners expect to increase production to about 23 mscmd through the development of three new fields in the east coast. The expectation is 10 mscmd of gas from the D2, D6, D19 and D22 fields in the eastern offshore block and another 13 mscmd from a D34 discovery.