DGH move to repossess KG-D6 fields not fair, says RIL

Reliance Industries Ltd has dashed off a letter to the Directorate General of Hydrocarbons (DGH) against the upstream oil regulator's move to take away some 86 per cent of the D6 gas block in the Krishna-Godavari basin, including eight gas discoveries potentially worth $10 billion, from RIL's control as "arbitrary".

P M S Prasad, chief executive of the oil & gas arm of the Mukesh Ambani-controlled RIL, on 24 August wrote a strongly-worded letter to petroleum secretary Vivek Rae, saying the DGH itself was responsible for the delay in developing the finds, according to a report by news agency PTI.

The letter impugned the intent of the DGH in asking the company to give up 6,601 sq km out of the total 7,645 sq km area in the block on the ground that the time line to develop the fields had expired.

Of the eight discoveries in the area, the DGH refused to consider investment plans for five, with 0.8 trillion cubic feet of reserves, saying they were not viable at the current price of $4.2 per million British thermal units.

The regulator refused to recognise the other three as discoveries in the absence of prescribed tests to confirm them and then disallowed pleas by Reliance and partner BP Plc for time to do the tests.

"In spite of the PSC (product-sharing contract) providing for sale of gas at market prices, and the approved price of $4.2 being only valid until 31 March 2014, DGH insisted on evaluating the proposed development plan (of five discoveries) at a gas price of $4.2 and declared them to be unviable," Prasad said, adding this was done even after the knowledge that the field would start production much later than April 2014.

Prasad said Reliance-BP had agreed to carry out the DGH-prescribed drill stem test to confirm the three discoveries, but the regulator never approved them and was now insisting on relinquishment of the areas.

In the 11-page letter with point-by-point rebuttals to the DGH claims, a copy of which was marked to petroleum & natural gas minister M Veerappa Moily, Prasad asked Rae to "advise the concerned to rectify the errors and remove the hurdles which are needlessly delaying further progression in these discoveries".

RIL had offered to relinquish 4,233 sq km of "low prospectivity area" in the eastern offshore KG-DWN-98/3 or KG-D6 block in keeping with the contractual requirement to retain only those portions needed to produce oil and gas.

The area RIL is seeking to retain contains the 20 oil and gas finds it has made till date.

"Needlessly projecting RIL as a defaulter and forcing the contractor to relinquish discovered resources will not only hurt the investor but considerably reduce the chances of many of these discoveries ever being produced," Prasad said.

"Contractor (RIL) is of the view that the action is clearly an afterthought, based on arbitrary decision and tantamount to disputing completely valid discoveries made at the contractor's risk."

Prasad said the discoveries were unilaterally declared unviable by the DGH without a discussion by the block oversight panel or taking its views into consideration.