Reliance Industries has slapped an arbitration notice challenging oil ministry’s decision to take away 814 square kilometer of its eastern offshore KG-D6 area that contained five gas discoveries.
As per norm of giving up non-discovery area, RIL had in 2013 offered to give up 5,385 sq km out of a total 7,645 sq km area in Krishna Godavari basin KG-D6 block. But the ministry on October 30, 2013 ordered 6,198.88 sq km of total area to be taken away as the time allocated for producing from these had expired.
RIL on January 14 challenged this order stating the 814 sq km of additional area that the ministry had taken away contained five gas discoveries holding close to 1 trillion cubic feet of reserves.
Sources said the company in the notice demanded that the dispute on taking away the area be referred to arbitration, the relinquishment order be withdrawn and compensation be paid for breach of contract by the government.
As per norms, a contractor is allowed to retain only that area where discoveries have been made. But in case of KG-D6, the Directorate General of Hydrocarbons (DGH) ordered larger area to be taken away as RIL had allegedly failed to develop the finds within the stipulated time-frame.
RIL in the notice has said that the October 2013 order breached its right to retain the fields and that the time period for approving these discoveries ‘never expired’ as the block oversight panel, called the Management Committee had agreed to a phased approach for their development.
The firm claimed that the order was based on the “erroneous premise” that it had failed to submit a development plan for these fields.
“In fact, the contractor had submitted the field development plan for all nine satellite discoveries (including the Second Phase Satellite Fields), and it had never withdrawn the FDP,” RIL wrote to the ministry.
The ministry, however, believes that RIL had passed the timelines for submitting appraisal and field development plans and that there was no provision in the production sharing contract to extend the appraisal period.
Sources said the ministry plans to reject the arbitration notice as the timelines for developing the five discoveries — D4, D7, D8, D16 and D23, had lapsed and no development plan was submitted.
Also, RIL did not submit declaration of commerciality for D-5 and D-18 discoveries, the period for which has also expired, they said.
RIL and government are locked in two arbitration cases over the KG-D6 block — one pertains to USD 1.8 billion in cost being disallowed for gas production not meeting targets and the other over government deferring gas pricing guidelines.