In relief for Mukesh Ambani-promoted Reliance Industries (RIL), the petroleum ministry has said it is agreeable to giving the firm a one-year extension to redo the necessary tests at three gas discoveries (D29, D30 and D31) in its KG-D6 block. This, if approved by the new government, would allow the company to develop and monetise the hydrocarbons present in these acreages.
Earlier, these discoveries were not recognised by the Director General of Hydrocarbons (DGH) because RIL did not conduct drill stem test (DST), a mandatory technical requirement to establish the presence of hydrocarbons that can be drilled commercially. Effectively, this meant a bar on commercial exploitation of the ?discoveries.? If one more year is given to the company to do DST, it will be able to monetise the assets.
The oil ministry’s new move, however, comes with a caveat. RIL will be allowed to recover only 50% of the cost it incurs to conduct the DST.
The three discoveries ?D29, D30 and D31 ? are estimated to hold ?associated reserves? of 345 billion cubic feet (bcf), valued at about $1.45 billion at the current gas price of $4.2/mmBtu. RIL operates the KG-D6 block along with partners BP and Canada’s Niko Resources.
However, RIL will have to wait till the new government takes charge as the petroleum ministry would require a permission from the Cabinet Committee on Economic Affairs (CCEA) to give its go-ahead.
?The proposal is to allow the contractor to submit a revised declaration of commerciality (DoC) within one year from the day CCEA grants the approval. As more than 10 years have elapsed since the first discovery in the block, the relaxation of Article 21.5.12 would be required,? a senior petroleum ministry official told FE.
The cost of conducting DST is $ 93 million and 50% of this should be borne by the contractor as a penalty for not adhering to the time lines prescribed in the production sharing contract (PSC), the official added.
In February, 2010, RIL submitted a DoC proposal for the gas discoveries D29, D30 and D31 in the KG-DWN-98/3 block, commonly known as KG-D6. But, in October, 2010, DGH said the DoC could not be evaluated because of lack of sustainable production test data, which is a PSC requirement.
DGH has maintained that since 2010, DST is a mandatory contractual and technical requirement under the PSC. According to the regulator, in case DoC is accepted without robust and technically sound data, it may lead to the field development plan (FDP) having a higher probability of failure, which may lead to severe underperformance.