Ministry okays action against RIL for low gas output

The petroleum ministry has sanctioned taking "scrupulous" action against Reliance Industries Ltd for natural gas output from its Krishna-Godavari D6 fields falling below the target, according to a widely cited PTI report.

Petroleum minister S Jaipal Reddy had on instructed authorities on 9 November that "scrupulous" action may be taken against RIL.

Contrary to the production sharing contract (PSC), the ministry has decided to disallow expenditure incurred in constructing production / processing facilities at Dhirubhai-1 and 3 gas fields in the KG-D6 block that are currently underutilised or have excess capacity because of falling output.

According to the report, sources privy to the decision said that based on the solicitor general's opinion, which was concurred with by law minister Salman Khurshid, $1.85 billion out of the $5.694 billion investment already made will be disallowed and arbitration initiated to recover that from RIL.

Sub-surface issues like fall in pressure and water ingress have led to fall in output at D1 and D3 from 54 million standard cubic meters per day, achieved in March 2010, to under 35 mmscmd currently, instead of rising to the targeted 61.88 mmscmd.

Under the PSC, an operator has right to recoup or recover 100 per cent of the expenditure he had incurred on finding and producing from the revenues earned from sale of oil and gas before profits are split with the government.

Such expenditure is approved by the government not once but twice - first at the time of approving field development plan and then every year at the time of approving annual budget for the fields. To alter this cost recovery, an amendment to the PSC is required which can be done only by Parliament.

Sources told PTI the ministry's decision is unprecedented because it was accepted the world over that field behaviour is something that cannot be accurately predicted and operators cannot be held responsible for variations, as evident from several fields of state-owned Oil and Natural Gas Corp (ONGC) that missed targets by miles.