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• The oil ministry has asked Reliance Industries to withdraw its arbitration proceedings as there was “no move” by the government to curtail the company’s plans to recover cost on its hunt for oil and gas in the KG-D6 block.Partha Sarthi Das, director in the exploration division of the oil ministry, on January 25 had written to RIL executive director P. M. S. Prasad, saying “as on date”, no dispute has arisen to warrant arbitration and the company should withdraw the notice invoking arbitration forthwith, official sources said.
• Reliance had initiated arbitration proceedings against the ministry on November 24 in anticipation of the government’s reported move to restrict the cost recoverable by the firm for developing the KG-D6 block on account of a slump in production.Earlier reports had indicated that the government was considering disallowing $1.85 billion of the $5.69-billion investment already made by RIL in the block and arbitration would be initiated to recover this sum from the company.Reliance has been in public glare for the falling output from its KG-D6 gasfields and its inability to check it. The petroleum ministry was planning to take action against Reliance for the flagging gas production.
• Production averaged 48.13 million cubic metres per day (mmcmd) against the target of 53.40 mmcmd in 2010-11 and 38.61 mmcmd up to October last year compared with the target of 61.88 mmcmd in 2011-12. Production of 80 mmcmd was envisaged in 2012-13.The ministry’s technical adviser, the directorate general of hydrocarbons (DGH), suggested disallowing some portion of expenditure already made as RIL had drilled and completed only 18 wells against the agreed 31 wells in the block, resulting in lower output.
• According to the revised field development plan approved in 2006, RIL was required to drill, connect and put on stream 22 wells by April 2011, with an envisaged production rate of 61.88 mmcmd, and 31 wells by April 2012 at an envisaged production rate of 80 mmcmd.The ministry and the DGH feel that had RIL performed its obligations under the production sharing contract (PSC) and the approved field development plan, the production rate ought to have been touching 80 mmcmd at present rather than showing a gradual trend to decline
• RIL had said it had not drilled the committed wells because of problems with the reservoir, while the output dipped on account of an acute pressure drop and water ingress.The New Exploration Licensing Policy, under which Reliance had won the KG-D6 blocks in 2000, allows operators to recover 100 per cent of their expenditure on exploration and production before sharing profits with the government. It does not link cost-recovery to output, but the ministry wants to restrict this in proportion to gas production vis-a-vis the target.It remains to be seen how RIL will respond to the ministry’s letter. Under the dispute resolution process set out in PSC, the claimant (RIL) can ask the Chief Justice of India to appoint an arbitrator on behalf of the government. The two arbitrators would then appoint a third neutral arbitrator.

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