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RIL, govt to continue using production sharing contract

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SummaryContentious clause to continue but wonít be template in 10th NELP.

Reliance Industries and the government will continue to use the current production sharing contract despite the differences about the document which has also been criticised in audit reports.

Days after the Union Cabinet permitted RIL to sell natural gas from its new discoveries especially to the south of the D1, D3 fields at the new price, a government source said the existing contract with the contentious clause of ďinvestment multipleĒ will continue.

However, it will not be the template in the next round of award of exploration blocks (tenth NELP) expected in FY15, for other companies. This is because at least two rounds of exploration have already been gone through with amendments to the contract that supposedly was skewed towards the contractor. The contract had a clause which allows for a sudden rise in the contractorís share in the profit sharing arrangements if his investment crosses a threshold. While this has been smoothened out in the new versions, RIL will get the benefit of the existing arrangements.

But if the company bids in the new rounds it will sign on the new contract. To make it do so the government has asked it to surrender five discoveries made by it higher up from the KG-D6 basin and bid afresh for the same. RIL has disputed the same.

It is also confident that its D1 and D3 wells in the Krishna Godavari basin have no more than 1 tcf of recoverable gas deposits much lower than what the government anticipates.

The Cabinet last week permitted RIL to sell natural gas from its new discoveries especially to the south of the D1 D3 fields at the new price almost double of the current $4.2 per mmBtu. But it insisted that the remaining gas from the original area must be sold at the existing price to make good on the shortfall it has run up since 2010.

But RIL sources said they are confident they will not forfeit the bank guarantee they have been asked to furnish as a pre-condition for migrating to the higher gas price regime.

As part of the clearance, the government has asked the company to drill more wells beyond the main channels through which its current supply runs as it expects the new wells will uncover more reserves. But RIL sources said these will be fruitless since ďthere is no more gasĒ. Each well costs about $500 million to dig.

Tenth round of oil

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