In the process, the ministry has cold-shouldered RIL's offer, made in presentation on September 18, to relinquish 70 per cent of "low-prospectivity area" in the block. Mukesh Ambani-controlled RIL had earlier slammed a move of the Directorate General of Hydrocarbons (DGH) to take away 86 per cent of its KG-D6 block area on the ground that the company had overshot the time allotted to it for developing the area.
In its order dated October 23 - addressed to P M S Prasad, RIL's executive director; and Sashi Mukundan, region president & country head, BP Group - the ministry has asked them to immediately surrender 6,198.88 of the 7,645 sq km in the KG-D6 block. The five discoveries, to be relinquished immediately, contribute more than 80 per cent of the KG-D6 block.
A ministry official confirmed to Business Standard that Petroleum Minister M Veerappa Moily had approved the proposal on October 9.
While batting for relinquishment of the area, DGH had cited reasons like non-filing of a field development plan by the contractor, the discoveries being uneconomical at $4.2 an mBtu and drill stem testing (DST) not being available. The Comptroller and Auditor General had also batted along the same lines in its audit report, asking for a review of the contract area.
With a 60 per cent stake, RIL is the operator of KG-D6, while BP and Canada's Niko Resources own 30 per cent and 10 per cent, respectively.
According to the ministry letter, the exploration period ended in July 2008; so, RIL should only retain 1,446.12 sq km of KG-D6, including development and discovery areas. The parts it could retain are the D1, D3, D26, D2, D6, D19, D22, D42, D34, D29, D30 and D31 discoveries. When contacted, a top RIL official, asking not to be named, confirmed the development.
The company said, though an approved gas price of $4.2 an mBtu was valid till March 2014, according to the production-sharing contract, DGH had insisted on evaluating development plan at the old price and declaring the five blocks unviable. RIL had already conveyed to DGH that it did not agree the price of $4.2 an mBtu was right for evaluation and that the price was expected to rise by the time of actual production.
The decision, cleared by Moily, suggests the estimated 805 bcf of reserves should be offered for competitive bidding on priority.
However, in a relief to the contractor, the ministry has allowed it to retain the three other findings (D29, D30 and D31), conduct fresh DST and review the declaration of commerciality on the basis of that. These three discoveries have 345 bcf of natural gas, with a value of about $4 billion. Depending on the outcome of this DST, the matter would be taken up before the Cabinet Committee on Economic Affairs.
But industry experts believe, even if the government puts these blocks under the New Exploration Licensing Policy, the incoming contractor would have to depend on RIL's infrastructure. In its September 18 presentation to the petroleum minister, RIL had argued carving out the block and awarding it to a new company would defer production from the discoveries by at least 10 years.
Earlier, the company had held the oil regulator responsible for the delay in developing the finds. On August 24 this year, P M S Prasad had written to Oil Secretary Vivek Rae, questioning DGH's motive. After announcing its results for the second quarter of this financial year, the company had said further investment in its key gas field to reverse falling output rested on a rise in domestic gas prices.
- 81.08% The ministry, in its October 23 order, has asked RIL to immediately surrender 6,198.88 of the 7,645 sq km in KG-D6
- $10 billion Estimated value of the 805 bcf natural gas reserves in the 5 discoveries to be relinquished - D4, D7, D8, D16 and D23
- 1,446.12 sq km The area in KG-D6, including development and discovery, that RIL can retain
- 3 other findings RIL has been allowed to retain D29, D30 and D31 discoveries and conduct fresh DST, on the basis of which the matter will go to CCEA
- $4.2 an mBtu According to RIL, this gas price was valid till March 2014, but DGH had insisted on evaluating development plan at the old price and declaring the five blocks unviable