Reliance takes on DGH over plan to relinquish five K-G discoveries

Regulator wanted to put the areas under hammer

The dispute between Reliance Industries Ltd (RIL) and the Directorate General of Hydrocarbons (DGH) over relinquishment of part of the KG-D6 block has taken a fresh twist, with the regulator moving to put five of RIL’s discoveries on the block, and RIL writing an angry letter to the government over the development.

The five discoveries made by RIL have reserves of 805 billion cubic feet. The regulator had also recommended the government to offer the area relinquished under the next round of the New Exploration Licensing Policy, saying the current stage relinquishment is appropriate action according to the  production sharing contract. RIL has lashed out at DGH in a letter to Petroleum Minister M Veerappa Moily and oil secretary Vivek Rae over the issue of gauging the viability of these blocks based on old price of $4.2 per million British thermal (mBtu).

In the letter, RIL executive director P M S Prasad alleged that despite the production sharing contract (PSC) stating the approved price of $4.2 per mBtu was valid till March 2014, DGH insisted it evaluate the development plan at that price and declare the blocks unviable. The letter stated DGH did this despite knowing that development would happen only after April 2014.

DGH was batting for the relinquishment of the area related to the five discoveries, citing reasons that the contractor had not submitted any field development plan (FDP), the discoveries were uneconomical at $4.2 per mmBtu and drill stem testing data was not available.  

Hitting back at the DGH move, Prasad added, “Evaluating FDP at a sub market price and then declaring it unviable was not only against the PSC, but was tantamount to suppressing much-needed production in a country suffering from lack of gas.”

RIL had already informed DGH that it did not agree that the price of $4.2 per mmBtu was the right price for evaluation, and that price was expected to be higher by the time of actual production.

He also highlighted that the company had submitted FDP for nine discoveries, including the five that DGH wants to be relinquished, way back in 2009.  “Relinquishment not only delays the process of commercial development by several years but might render them commercially unviable, defeating the very purpose of NELP,” the letter added.

Commenting on the hurdles faced by investors in the country’s oil and gas sector, former Oil and Natural Gas Corporation chairman and Ficci  Hydrocarbon Committee head R S Sharma said, “There is a fear-psychosis among the investors, as bureaucracy is in a frozen state. This is the sad state of affairs, in which an operator has to knock from one door to another for clearances.”

Meanwhile, the oil ministry has sought legal opinion on levying an additional penalty of $781 million on RIL for failing to produce pre-stated volumes of natural gas from the KG-D6 field in 2012-13.

Oil secretary Vivek Rae told the media on Thursday that the government has already issued notice to the company for imposing a penalty for shortfall for the financial years 2010-11 and 2011-12.  

“For 2012-13, we are examining what needs to be done, whether the higher penalty is to be imposed and if so, in what manner. We are seeking the advice of the law ministry right now,” Rae said.