Oil min overrules DGH, allows RIL to retain 3 prized KG-D6 gas fields

Written by fe Bureau | New Delhi | Updated: Oct 29 2013, 11:22am hrs
In a relief to Reliance Industries (RIL) and BP, partners in the KG-D6 block, petroleum minister Veerappa Moily has virtually overruled the Directorate General of Hydrocarbons and allowed the combine to retain the three prized gas fields D29, D30 and D31 - in the block which together hold around 2.2 trillion cubic feet (tcf) of gas.

The DGH had earlier asked RIL to relinquish these three fields for failing to perform the drill stem test (DST) which the DGH says is mandatory during the exploration stage.

In an order issued earlier this month, which is subject to review by the Cabinet Committee on Economic Affairs, Moily stressed that there were precedents in the past of the regulator not insisting on the DST for declaration of the commerciality (DoC). The minister also noted that the DoC was submitted by the firm within the stipulated time frame.

The oil minister, however, approved relinquishment of five other gas discoveries D4, D7, D8, D16 and D23 together are estimated to hold 0.8tcf of gas in the block owing to RILs failure to meet timelines of the field development plan (FDP).

The five discoveries may be auctioned by the government. If a new bidder wins the fields they could use RILs existing infrastructure for which they can pay a rent, said an oil ministry official.

The output estimates of the RIL's D1 and D3 blocks was originally estimated at 10.2 tcf before being lowered to 3.2 tcf. With around 2tcf already taken out, these two fields hold 1.2 tcf.

To address the oil companies' concerns over the practice of having to obtain regulatory consent for commerciality of their discoveries surrounding existing fields, the oil ministry had said that operators can start production from all wells in an existing development area without a DoC.

Sources said that Moily's note added that there has been a delay on the part of the DGH in reviewing the DoC and taking a categorical stand that the contractor must conduct DST. Moily's order stated that hence, a fair and balanced approach could be to allow the contractor to conduct the DST now and review the DoC on the basis of outcome of these tests.

The DGH had earlier maintained that RIL has not conducted the mandatory DST and was, therefore, liable to relinquish the three fields. RIL wants to develop these fields along with the neighbouring D-34 field which is said to hold recoverable reserves of 1.193 tcf.

RIL officials state that the DGH decided to bring up the issue of absence of DST in case of D29, D30 and D31 finds only eight months after the of commerciality documents were submitted and 40 months after the discovery. They also note that nowhere in the production-sharing contract (PSC) has DST been mentioned as a mandatory exercise.

RIL has 18 oil and gas finds and one oil discovery in the eastern offshore KG-D6. Of these, D26 or MA oil discovery started pumping oil in September 2008 while the D1 and D3 gas fields were put on production in April 2009. The total area of 1,446.12 sq km corresponding to the discoveries (D1, D3, D26, D2, D6, D19, D22, D42, D34, D29, D30 and D 31) is at present being considered as a discovery and development area as per data and material provided by RIL to the DGH, out of the contract area of 7,645 sq km, and the same can only be retained as per article 3.11 of the PSC. The exploration area expired on July 15, 2008, and the contractor can only retain the discovery and development area.

RIL had offered to give up or relinquish 5,367 sq km out of the total 7,645 sq km area in the KG-D6 block. However, the DGH wanted another 1,130 sq km, which contained these eight finds (including D 29, D30 and D 31), to also be taken away from RIL on the grounds that the time frame to develop the fields had expired.

Officials from RIL and its partner BP on September 18 made a presentation to the oil minister, oil secretary Vivek Rae and DGH director general RN Choubey, holding that they had not deviated from the PSC and had the right to retain the 1,130 sq km area.

At the meeting, RIL-BP officials RIL executive director PMS Prasad and BP's India head Sashi Mukundan made a presentation on why the DGH was wrong in asking it to relinquish nearly 86% of its KG-D6 gas block including eight promising new discoveries. RIL-BP said that the DGH was wrong in asking it to conduct a DST since the PSC gave RIL-BP the option of what tests to do. And when RIL agreed to do the test, Prasad told Moily, Choubey and Rae, the DGH said it had run out of time to do so. RIL officials also said that while the discoveries had been made 40 months ago, the DGH had not asked for a DST till now.