DGH directs RIL to quit 86% area in KG-D6

Says Reliance has overshot the time allotted to it for developing the area New Delhi (PTI): Oil regulator DGH wants Reliance Industries to give up 86 per cent of its KG-D6 gas block area, including 8 gas discoveries worth at least $5 billion, saying that the firm has overshot the time allotted to it for developing the area. Rejecting RIL's offer to relinquish 4,233 sq km of 'low prospectivity area' in the eastern offshore KG-DWN-98/3 or KG-D6 block, the Directorate General of Hydrocarbons (DGH) has stated that the company should contractually give up 6,601 sq km out of the total 7,645 sq km total area in the block. In a 6-page note excluding 3 annexures, DGH Director General R N Choubey on April 15 wrote to Oil Secretary Vivek Rae that of the 19 oil and gas discoveries claimed by RIL, three finds have not been established as commercially viable in absence of test data and the company has not submitted any investment plans for another five. "Ministry of Petroleum & Natural Gas may intimate the contractor (RIL) about cessation of Petroleum Exploration License in respect of 6,601 sq km of contract area in the first instance in the block KG-DWN-98/3 under Article 3.11 of PSC," he wrote. He said the area proposed for cessation has at least 1.15 trillion cubic feet of known recoverable gas reserves valued at $4.83 billion at current prices. Of the 19 finds, RIL began crude oil production from MA field in September 2008. It started gas output from MA field and Dhirubhai-1 & 3, the largest of the 18 gas discoveries in the block, in April 2009. "Of the rest, Declaration of Commerciality (DoC), the first step towards monetisation, for D29, 30, 31 and 42 has not been approved by DGH because of lack of sustainable production test data which a Production Sharing Contract (PSC) requirement," DGH wrote. D-29, 30 & 31 finds, according to DGH estimates, may hold 345 billion cubic meters of recoverable reserves, valued at $1.45 billion. D-42, which holds 11.46 bcf recoverable gas reserves, lies within approved mining lease area of four satellite gas discoveries (D-2, 6, 19 and 22) and hence will have no bearing on relinquishment sought. DGH said RIL has not submitted field development plan for 5 gas finds - D-4, 7, 8, 16 and 23, containining 805 bcf of recoverable reserves worth $3.381 billion, even after expiry of timelines for the same as prescribed in PSC. Further, two discoveries -- D-5 & 18, were found to be not commercially viable. DGH proposed that RIL should be allowed to retain only an area of 1,044 sq km which will hold the currently producing D1&D3 gas and MA oil and gas field besides a cluster of four satellite fields (D-2, 6, 19 and 22) and another D-34 discovery. RIL had in its March 13 proposal wanted to retain 3,412 sq km of area containing all the oil and gas finds made till date. Sources said the company made the area relinquishment offer last month just as the Oil Ministry was readying an order asking the firm to vacate some 5,970 sq km of KG-D6 block in first instance. Contractually, companies are required to relinquish 25 per cent of the area in an oil and gas block at the end of first phase of exploration that spans three years. At the end of second phase, 50 per cent of the area is to be given up and by the third phase only such area is allowed to be retained where the company has made a discovery and is required for development and production of the same. The second and third phases are of two years duration each. RIL and its partner Niko Resources of Canada were awarded the KG-D6 block in 2000. The three-year Phase-1 ended on June 7, 2003 while the 2-year Phase-II expired on June 7, 2005. The third phase ended on June 7, 2007. Sources said DGH in 2006 agreed to RIL proposal of declaring the entire 7,645 sq km as discovery area, thereby allowing the company to retain the full area. The decision was ratified by a committee headed by Additional Secretary in the Ministry and by the Oil Minister thereafter. But the decision was questioned by government auditor CAG as at the end of the third phase, only 79 per cent of the block area was covered by 3D seismic survey and yet the entire area was declared a discovery area. CAG in its performance audit in 2011 had asked the Ministry to review determination of entire contract area of KG-DWN-98/3 (KG-D6) as 'discovery area'. KG-D6 output has dipped from 69.43 million standard cubic meters a day achieved in March 2010, to under 16 mmscmd this month.