Oil Min to move Cabinet to allow RIL to retain gas finds

With development of three gas finds in Reliance Industries' KG-D6 block held up due to a technical dispute, the Oil Ministry is seeking Cabinet nod to relax timelines to allow the firm retain and produce from the discoveries worth $1.45 billion.

RIL had notified the Dhirubhai-29, 30 and 31 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 ministry's technical arm DGH refused to recognise them in absence of prescribed confirmatory test.

The issue was intensely debated between RIL, DGH and the ministry since then. Mukesh Ambani-run firm finally agreed to do the Drill Stem Test (DST) but the DGH declared that the contractual time period for development of the finds is over.

The Oil Ministry feels that taking away the discoveries, which hold an estimated 345 billion cubic feet of reserves, and rebidding them may lead to delay in development, sources privy to the case said.

Also, it feels RIL may go to arbitration which may lead to further delay in production and extra legal cost.

The three finds, which can be quickly put on production by RIL using existing infrastructure of currently producing gas fields as well as those being developed, are worth $1.45 billion at current gas price of $4.2 per million British thermal unit.

Sources said the ministry is moving the Cabinet Committee on Economic Affairs (CCEA) for relaxation in the Production Sharing Contract (PSC) timelines to help RIL monetise the finds.

Comments on a draft CCEA note are being sought from the ministries of finance and law besides the planning commission before taking it to the CCEA for approval.

Sources said RIL will have to conduct DGH prescribed DST on D29, 30 and 31 discoveries and only half of the $93 million cost of the test will be allowed to be cost recovered. Originally, the petroleum ministry under the previous UPA regime's oil minister M Veerappa Moily had in April prepared a draft CCEA note seeking relaxation for RIL.

The ministry sought Election Commission nod to approach the CCEA on the issue since general elections had been declared, they said adding the permission never came. Sources said the ministry has once again revived the CCEA note.

It has proposed to the CCEA that RIL be allowed one year to submit a revised declaration of commerciality based on the DST results and allow another year for submission of a field development plan.

If the CCEA approves, the same rule will then be applied to RIL's four gas discoveries (D-9, 10, 32 and 40) in North-EastCoast block NEC-0sn-97/1 (NEC-25) which hold recoverable reserves of 1.032 trillion cubic feet.

RIL has so far made 18 gas and one oil discovery in the eastern offshore KG-D6 block. Of these, two gas discoveries were put on production in April 2009 and the oil find in September 2008. Investment plans for five discoveries have been approved and a similar number of finds have been taken away from RIL for not submitting development plans in time.

RIL had decided not to develop two finds because of small gas pool and the remaining one discovery is within the mining lease area of the producing gas fields.

Out of a total area of 7,645 square kilometres in KG-D6 block in Bay of Bengal, the government last year allowed RIL and its partners BP plc of UK and Canada's Niko Resources to retain only 1,4462.12 sq km area where regulator DGH-recognised discoveries have been made.

The area snatched away from RIL was more than 5,367 sq km that the company had offered to relinquish voluntarily and contained five discoveries - D4, D7, D8, D16 and D23 – for which the DGH had opined that RIL missed deadlines for submission of investment plans.

The five discoveries together had 0.805 Tcf of reserves, or about one-fourth of the restated reserves in the currently producing Dhirubhai-1 and 3 (D1&D3) fields in KG-D6 block.

Sources said the 1,4462.12 sq km area that RIL was allowed to retain included the currently producing D1&D3 gas fields and D26 (MA) oil and gas field.

Besides, a cluster of four satellite fields (D2, D6, D19 and D22) and two other significant discoveries (D42 and D34), for which investment plans have already been approved, are also being allowed to be retained by RIL.

The area allowed to be retained also includes three yet-to-be-confirmed discoveries of D29, D30 and D31.