Govt asks RIL to surrender over 80% of KG-D6 gas block

The government has asked Reliance Industries Ltd (RIL) to return over 80 per cent of the exploration area under the KG-D6 gas block, including five discoveries, as the company has failed to start production long after the stipulated deadline.

Oil minister Veerappa Moily is reported to have given the necessary orders to the oil ministry to take back the area that RIL has failed to develop, including the five discoveries in the 7,645 square km D6 block.

RIL and its partners BP plc of UK and Canada's Niko Resources will have to give up 6,198.88 square km of the D6 block, including the five discoveries of D4, D7, D8, D16 and D23.

The five discoveries hold 805 billion cubic feet of reserves, or about one-fourth of the restated reserves in the currently producing Dhirubhai-1 and 3 (D1 and D3) fields in KG-D6 block, and are worth $10 billion.

"I think the notice has gone. If it hasn't yet gone, it will go today. We plan to send them the notice today," Moily said today.

The area to be relinquished will be auctioned in subsequent licensing rounds, he said, adding that the relinquished area does not contain any producing fields.

It may be noted that RIL had earlier offered to relinquish 5,367 sq km area, including the five discoveries - D4, D7, D8, D16 and D23 - for which RIL had missed deadlines for submission of investment plans, according to the Directorate General of Hydrocarbon (DGH).

RIL has till date made 18 oil and gas finds and one oil discovery in the eastern offshore KG-D6.

Of these, D26 or MA oil discovery started pumping oil in September 2008 while D1 and D3 gas fields were put on production in April 2009.

The government approved three separate field development plans for six discoveries (D2, D6, D19, D22, D42 and D34).

RIL will be allowed to retain a total area of 1,446.12 sq km (corresponding to discoveries D1, D3, D26, D2, D6, D19, D22, D42, D34, D29, D30 and D31 and D26 (MA) oil and gas field), which is at present being considered as discovery and development area out of the contract area of 7,645 sq km.

The remaining 6,198.88 sq km is to be relinquished by RIL.

"We discussed the issue threadbare and after analysing it have reached to this conclusion that they (RIL) need to relinquish certain area as per the Production Sharing Contract (PSC)," the DGH said. "We have followed a transparent process where we gave them due opportunity to present their case."

The petroleum ministry is expected to move the cabinet soon to deny the new $8.4 per million British thermal unit price for gas from D1&D3, since output there have fallen to 10 million standard cubic metres per day from 54 mmscmd achieved in March 2010.

RIL will be allowed the new price only if its arguments of geological complexities being responsible for the fall in production are proved.

The ministry has already moved to deny $1.8 billion of its cost to RIL for the same reasons.

The ministry did not say how it will compensate RIL for the period when it is forced to sell gas at $4.2 per mmBtu if it is proved at a later date that the company had not deliberately suppressed the output.