DGH failed to properly assess RIL gas discoveries: CAG

The ministry of petroleum and natural gas and its technical arm Directorate-General of Hydrocarbons (DGH) approved the notification of Reliance Industries' now flagging gas discoveries in the KG-D6 block, off the east coast of India, even though the company had not done a proper appraisal of the gas fields, the Comptroller and Auditor General of India (CAG) said in a report.

RIL had, in October 2002, announced gas finds in the Dhirubhai-1 and 3 fields and declared them commercially viable in April 2003 and March 2004, respectively. And, in May 2004, the company claimed these finds to hold a total inplace reserves of 8.3 trillion cubic feet (TCF), the CAG said in a draft performance audit report of KG-D6 block.

The DGH approved investment of $2.47 billion for initial development of the Dhirubhai-1 and 3 fields of the HG-D6 block in August 2006 by lowering the inplace reserves to 5.45 trillion cubic feet (TCF) and recoverable resource to 3.81 TCF with first gas against RIL's find of 8.3 TCF in place gas reserves.

However, in October 2006, RIL amended the development plan by raising the recoverable reserves to 12.04 TCF and in-place reserves of 14.164 TCF, while also raising capex requirement to $8.8 billion, in two phases.

A management committee, comprising representatives of DGH, oil ministry and the operator, in December 2006 approved the revised plan, putting recoverable reserves at 10.03 TCF and doubling output to 80 million standard cubic metres a day.

Gas production from the fields started in April 2009, but output levels slumped within a year of starting production, forcing RIL and its partner BP to restate the reserves at 2.9 TCF.

The production sharing contract required that the contractor submit an appraisal programme to reassess the extent of the discoveries, but this has not been adhered to, the CAG said in the report.

"There was no appraisal programme in respect of D1 and D3 gas discoveries as required under PSC. The operator moved directly from discovery to commercial discovery.

"Appraisal programme would have enabled the operator to delineate the petroleum reservoirs to which the discovery related in terms of thickness and lateral extent besides determining the characteristics thereof and quality of recoverable petroleum therein," it said in the report.

It was not clear how DGH had assured itself of the reliability of the estimates of gas reserves, production rates and costs of the development plan in absence of an appraisal, the CAG said.

Output at the D1 and D3 gas fields has fallen to about a tenth of the 80 mmscmd production that RIL had earlier estimated.

"It is not clear how DGH had ensured accuracy and realistic nature of the data before agreeing to the approval of Addendum to the Initial Development Plan (AIDP)," the auditor said.

The CAG has sought petroleum ministry's comments on its draft report before finalising a performance audit report.