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In a damning indictment, the CAG has said that the oil ministry and its technical arm DGH approved notification of now flagging gas discoveries in Reliance Industries' KG-D6 block despite the company not doing enough appraisal.

The CAG said in a draft audit report of KG-D6 block that RIL had found gas in Dhirubhai-1 and 3 wells in October 2002 and were declared commercially viable finds between April 2003 and March 2004. It in May 2004 claimed the finds to hold 8.3 trillion cubic feet of in-place gas reserves.

The DGH approved a USD 2.47 billion initial development plan for the 2 finds by lowering the in-place reserves to 5.45 trillion cubic feet and recoverable resource to 3.81 trillion cubic feet with first gas coming in August 2006.

However, before the start of commercial production, RIL in October 2006 submitted changes in the development plan by raising the capex requirement to USD 8.8 billion in 2 phases and putting recoverable reserves at 12.04 trillion cubic feet out of in-place volumes of 14.164 trillion cubic feet.

A management committee, comprising representatives of DGH, oil ministry and the operator, in December 2006 approved the revised plan putting recoverable reserves at 10.03 trillion cubic feet and doubling of output to 80 million standard cubic metres a day.

However the fields, which began production in April 2009, did not behave as predicted and output slumped within a year, forcing RIL and its new partner BP to restate the reserves at 2.9 trillion cubic feet. The CAG said in the report that the production sharing contract stipulates that a contractor should submit an appraisal programme to reassess the extent of the discoveries.

It said that “There was no appraisal programme in respect of D1 & D3 gas discoveries as required under PSC. The operator moved directly from discovery to commercial discovery. Appraisal programme would have enabled the operator to delineate the petroleum reservoirs to which the discovery related in terms of thickness and lateral extent besides determining the characteristics thereof and quality of recoverable petroleum therein.”

The CAG said that it was not clear how DGH had assured itself of the reliability of the development plan, as well as the estimates of reserves, production rates and costs in absence of the appraisal programme. D1 & D3 output has fallen to about one-tenth of the 80 million standard cubic meter per day production that RIL had estimated for this time.

The auditor said that “It is not clear how DGH had ensured accuracy and realistic nature of the data before agreeing to the approval of Addendum to the Initial Development Plan.” The CAG has sought comments of the oil ministry on its draft report before finalising a performance audit report.

Source-On Request