Govt asks DGH to change auditor for K-G basin

The petroleum ministry has asked the Directorate General of Hydrocarbons (DGH), the upstream regulator, to withdraw the appointment of Calgary-based DeGolyer and MacNaughton (D&M) as auditor of Mukesh Ambani-controlled Reliance Industries' D6 block in the Krishna-Godavari (K-G) basin off the Andhra Pradesh coast.

The DGH has been directed to appoint another independent international auditor.

The move is being taken following a hefty increase in the capital expenditure for developing the D6 block, which will impact the government's share of profits from the block since RIL will take longer to recover its costs.

In a letter to the DGH, the petroleum ministry has told the regulator it had "reservations on the proposed engagement of D&M in terms of potential conflict of interest as the firm has done some work in relation to the K-G basin D6 block of RIL itself."

The DGH had earlier appointed D&M to evaluate the capital expenditure that Reliance plans to spend to produce gas from the block that is estimated to hold 11.2 trillion cubic feet of gas.

A senior petroleum ministry official said since there were continued concerns from various quarters regarding the approval for the increase in captial expenditure from $2.4 billion to $8.8 billion by the management committee for the D6 block, it was necessary for the auditing process to be completely transparent.

As the expenditure on the project increased by more than three times, the gas production from the block doubled. Oil and gas blocks go through an auditing process to first discover the extent of reserves and then for determining the expenditure in the block to make production feasible.

The first audit is carried out by the contracting company, the second by the management committee and the third by the government. Each party appoints its own auditor.

D&M has earlier audited the estimated in-place gas reserves in the D6 block in 2003.

A senior Reliance official, while saying it would do as the government directs, added that the capital expenditure was in line with the increased cost of equipment and services.

"However, if we are directed by the government to cut costs by drilling fewer wells or compromising on quality, it will not be possible to follow those orders," the official added.

According to Niko, RIL's 10 per cent partner in the D6 block, $1.1billion has been spent on developing the block. The capital expenditure by the end of this financial year is estimated at $3.9 billion.

A DGH official had earlier told Business Standard that the $8.8 billion expenditure was only a relative figure though the actual cost of the project could be different.

The official had said that since every service or equipment was procured through an international competitive bidding process, and the cost of the project itself was approved by a management committee every year there could be no gold-plating of expenditure.

The petroleum ministry has asked the DGH to withdraw the appointment of DeGolyer and MacNaughton (D&M) as auditor of RIL's D6 block

It has been directed to appoint another independent international auditor

The move is being taken following a hefty increase in the capital expenditure for developing the D6 block