Govt eases gas field development rules for Reliance, ONGC

Easing rules, the government today approved a policy to allow Reliance Industries and ONGC develop a dozen contentious natural gas discoveries worth about Rs 1 lakh crore (Rs 1 trillion) at current prices.

The new policy gives companies options to either develop the finds at their own risk or perform upstream regulator DGH-prescribed conformity tests before developing them and recoup the entire cost.

This will "settle the long pending issue with regards to 12 discoveries in five blocks pertaining to Oil and Natural Gas Corp (ONGC) (six discoveries) and Reliance Industries (six discoveries) but will also establish a clear policy for the future," said an official statement, detailing the decision taken by the Cabinet Committee on Economic Affairs (CCEA).

The 12 finds hold reserves of around 90 bcm of gas "which would be valued at over Rs 1 lakh crore at the current gas price of $4.66 per million British Thermal Unit (mmbtu) on Gross Calorific Value (GCV)", it said.

The policy will also help in bringing out transparency and uniformity in decision making as against case by case approach in the past.

The CCEA allowed companies to either relinquish the blocks or develop the discoveries after conducting Drill Stem Test (DST) with 50 per cent cost of DST being disallowed as penalty for not conducting the test on time. The cost recovery for carrying out DST would be capped at $15 million.

Alternatively, the companies will be allowed to develop the discoveries without conducting DST in a ring-fenced manner i.e. at their own cost.

The expenditure incurred in developing these finds will be recouped only if the fields are commercially producible.

"If the contractor does not opt for any one of these options suggested above within 60 days of the CCEA approval then the area encompassing these discoveries shall automatically be relinquished," the statement said.

The new policy will help RIL monetise three discoveries in its flagging eastern offshore KG-D6 block. It had notified the Dhirubhai-29, 30 and 31 finds in 2007 and submitted a formal application for declaring them commercial in 2010, well within the timelines set in the Production Sharing Contract.

But the oil ministry's technical arm DGH refused to recognise them in absence of prescribed confirmatory test.

Same was the case with its gas discoveries in North-East Coast block NEC-0SN-97/1 (NEC-25) which hold recoverable reserves of 1.032 trillion cubic feet.

For the very same reasons, DGH had not agreed for DoC of ONGC's D, E and UD-1 finds in KG-DWN-98/2 or KG-D5 block.

According to ONGC, UD-1 discovery alone holds 2.836 trillion cubic feet of inplace gas reserves. Discoveries D and E hold 587.6 billion cubic feet of inplace reserves.