Reliance suffers a jolt

The oil ministry has served a notice to Reliance Industries, disallowing $1.45 billion of cost recovery from the eastern offshore KG-D6 fields for failing to meet its drilling commitment.

The ministry yesterday sent a notice to RIL disallowing $457 million of cost recovery for 2010-11 and $778 million of cost recovery in 2011-12, sources said.

RIL has already slapped an arbitration notice on the ministry saying the production sharing contract allows for operators to recover 100 per cent of the capital and operating expenditures on an oil and gasfield and does not in any way link the cost recovery to production.

The ministry has refused to join arbitration saying there is no dispute till now, but the notice establishes there is a dispute over the amount of cost that can be recovered.

The letter signed by A. Giridhar, joint secretary (exploration), states that RIL has till now spent $5.693 billion on the development of Dhirubhai-1 and 3 (D1 and D3) gasfields in KG-D6, of which about $4.574 billion has been incurred on production facilities alone.

“It is brought to your notice that up to March 31, 2011, you have recovered a sum of approximately $5.258 billion from the petroleum operations in the D1 and D3 development area,” the letter stated.

D1 and D3 are producing about 27.5 million metric standard cubic meters per day (mmscmd) against 61.88mmscmd committed by RIL in its $8.8-billion development plan.

The ministry said lower-than-anticipated production had led to under-utilisation of the field facilities. It also blamed the fall in output from 53-54mmscmd in March 2010 to drilling of less than committed wells.

Sources said according to the approved field development plans, RIL should have put 22 wells on production for 61.88mmscmd by April and 80mmscmd by the end of the year from 31 wells.

However, the company has so far drilled 22 wells but has put on production only 18 wells. The other four have not been connected to the production system as they contain uneconomical reserves.
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