The government should order an independent reserves audit of the D6 block if it wants to scotch widespread speculation about overestimation of reserves by contractors following the reported dip in production from the block. The country wants to know if the decline in output is because of technical reasons or due to a possible failure to assess the reserves correctly. If the government does not move fast, the public skepticism could get deeper. That would in turn impact future investments in key sectors like power and fertiliser.
The decline reported in production from the D6 block has generated a controversy. It is quite possible that the reported loss in production is due to a technical problem, since such things are common in the oil and gas industry. It is equally possible that both RIL and the Directorate General of Hydrocarbons (DGH) failed in their assessments of the reserves given the uncertainty involved in predicting geological factors, which are crucial to production performance. Since reserve estimates are finalised much before the start of actual production, figures may vary.
The field operator has failed to deliver on the committed production schedule. It has attributed the deviation in production plan to technical factors. However, the DGH has expressed doubts about the contractor’s explanation. But the DGH cannot escape the blame for the production fiasco at the D6 block given that the contractors had got the expenditure plan approved by the upstream regulator.
Under the contract, the upstream regulator does not have any penal powers to punish the contractors. But the government owes an explanation to the people over this issue given that the production plan for the block was approved by the DGH which comes under the administrative control of the petroleum ministry.
What makes public concern more justified is the fact that the capital expenditure made by RIL in the D6 block was nearly four times the initial estimate presented by the contractor. The DGH had approved the expenditure plan despite certain quarters raising doubts over that.
However, the government should be ready to finance the audit expenses from its own pocket rather than depend on the block contractors. Any expenditure by the contractors would be recoverable as cost, leading to an increase in the price of natural gas from the block.
Th real challenge for the government would be securing the cooperation of contractors?RIL and Canada’s Niko Resources. To make any such exercise worthwhile, the auditor needs access to technical data relating to the block, which is available with the field operator. Unless the operator shares those critical data, such an audit would be a wastage of public money.
As a result of the decline in production, RIL has been forced to cut supplies to nominated buyers. Investors who set up power and fertiliser plants are now staring at the possibility of their investments going bad because of feedstock shortfalls. Those who are still planning to make investments based on the availability of gas supplies from the D6 block might be able to take a more informed decision if an assurance on long-term production plan of the block is provided by the government.