Reliance may ask govt to refund its investment

Reliance Industries may ask the government for a refund of its investment if it is forced to give up any part of the prolific KG-D6 block as it has spent a huge sum of money on exploration after obtaining necessary permission to retain the entire 7,645-sq km area.

The Comptroller and Auditor General (CAG) had slammed the Oil Ministry and its technical arm, the DGH, for allowing RIL to retain the entire block when as per the contract, it was to relinquish 25 per cent of the area in 2004 and a similar area in 2006.

Sources privy to thinking in RIL said the Production Sharing Contract (PSC) gives the contractor the right to retain that part of the block where he feels petroleum exists.

By the end of the first phase of exploration in 2004, RIL had made 11 discoveries in the KG-D6 block and felt the hydrocarbon channels were spread over the entire block and thus, the entire area should be considered as a 'discovery area'.

The claim of RIL was first examined by the Directorate General of Hydrocarbons (DGH) and then by a committee headed by then Additional Secretary in the Oil Ministry S

Sundareshan. Both agreed with RIL's contention and the company was allowed to retain the entire block area.

Sources said having obtained the necessary approvals, RIL invested heavily in the block to establish about 40 trillion cubic feet of in-place reserves.

If it is now asked to relinquish or give up any part of the KG-D6 area, RIL feels it is naturally entitled to a refund of the investment it has made in that part of the area, they said.

Following the CAG report, there is a thinking in the government that RIL should be asked to surrender between 25 per cent and 50 per cent of the KG-D6 block.

Sources said RIL feels the entire relinquishment debate is needless as the company is permitted to produce oil or/and gas from only a limited 'Development Area' decided at the time of approval of the field development plan (FDP) and all excess area would be relinquished.

So far, only two of the 18 discoveries has been put on to production and the FDP for the others is either under consideration of the government or under formulation.

RIL also feels it has carried out a larger exploratory programme than what it committed in Phase-1, ending 2004.

RIL drilled 11 wells instead of its obligation to do only one and did 250 per cent more 3D seismic surveys. All the 10 wells were gas-bearing. RIL spent $131.77 million up to March 31, 2003, against its committed expenditure of $37 million.

Sources said the Production Sharing Contract (PSC) provides a contractor with the option of retaining such area where he thinks petroleum exits and is likely to be produced in commercial quantities.

RIL, which had made 11 discoveries in the KG-D6 block by the end of Phase-1 in 2004, felt hydrocarbon channels were spread over the entire block and thus the entire area should be considered as a 'discovery area.'