Regulator wants RIL to share royalty on gas sales margin as well: report
15 Feb 2010
The directorate general of hydrocarbons (DGH) has asked Reliance Industries to include its marketing margin on the sale of natural gas from the D-6 fields in the Krishna-Godaveri basin for calculating government's share in the project, media reports said today.
Private sector oil and gas explorer RIL charges a margin equivalent to $0.135 per million British thermal units of natural gas it sells to government-designated entities for covering risks, and DGH wants this to be added to the royalty base.
The government has set the sale price of the KG-D6 gas at $4.20 per million British thermal units (mmBtu) and the RIL's risk-cover margin of $0.135 is in addition to this.
The production-sharing contract with the government allows RIL to recover only capital and operating costs of producing oil or gas from sale of the produce. Costs associated with marketing, however, are excluded.
DGH now wants RIL to pay 5 per cent royalty calculated on $4.335 per mmBtu of gas (ie, $4. 20 + $0.135), thereby implicitly allowing a hike in the price of natural gas.
The production-sharing contract stipulates the government's royalty to be on the basis of the overall costs incurred by the operator, which in turn would also be the price of gas.
KG-D6 completed 289 days of production and has, by 22 January, ramped up capacity at the gas field to 60 million (MMSCMD). RIL said it would invest $8.8 billion in the well in addition to the associated operating expenses.
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