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Govt takes away five RIL Gas blocks in KG-D6 block

Oil Minister M Veerappa Moily hasapproved taking away five gas discoveries from RelianceIndustries in the KG-D6 block over the company's failure to meet timelines but has allowed it to retain three other finds to conduct further tests to judge their commercial viability.

Moily has decided to offer the five fields to bidders in a fresh auction on a priority basis, giving another blow to Mukesh Ambani's company. The oil ministry has alreadyslapped a penalty of over $1.7 billion for the missed production target and is preparing to deny the higher price approved by the government from April till the supply shortfall is made up.

The oil ministry is seeking to disallow the new price for RIL's existing fields because the Directorate General of Hydrocarbons (DGH ) blamed the company for the steep fall in output. Earlier, oil regulator DGHhad recommended that eight gas producing blocks be taken away from Reliance as it had failed to submit plans to commercially exploit the fields. It has been alleged that RIL had been hoarding its discovered gas so that it wouldn't have to sell it at the prevailing price of $4.2 per unit. Gas prices have been revised to $6.7 per unit wef 01.04.2014.

A report in the Economic Times, quoting sources, said RIL would contest the decision. The paper also said that if the fields are auctioned again, the new bidder would have to spend heavily in creating new infrastructure as the DGH has estimated that the value of the gas contained in these fields is $6.76 billion at the new gas price of $8.4.

The five discoveries - D4, D7, D8, D16 and D23 - hold0.805 trillion cubic feet of reserves, or about one-fourth ofthe restated reserves in the currently producing Dhirubhai-1and 3 (D1&D3) fields in KG-D6 block, and are worth $10billion.British Petroleum Plc has a 30 Percent  stake in the block.

Moily in the October 9 order, however, agreed with RIL'scontention that the company would retain D29, D30 and D31 gasfinds, holding 0.345 Tcf (Rpt) holding 0.345 Tcf, to conducttests for their confirmation.

RIL as per the contractual requirement of retaining onlythe area where discoveries have been made, had offered to giveup or relinquish 5,367 square kilometres out of the total7,645 sq km area in the eastern offshore KG-D6 block.

However, the Directorate General of Hydrocarbons (DGH)wanted another 1,130 sq km of area, which contained these 8finds, to also be taken away from RIL on the grounds that thetimeline to develop the fields had expired.

RIL and its partner BP plc officials on September 18 madea detailed presentation to the Minister, Oil Secretary VivekRae and DGH Director General R N Choubey contending that ithad not deviated an inch from the Production Sharing Contract(PSC) and had the right to retain the 1,130 sq km area.

Sources said Moily after examining the issue wrote on thefile that, "the contractor should be asked to relinquishcorresponding areas pertaining to 5 discoveries (814 sq km)with immediate effect" as RIL had not submitted the fielddevelopment plan for these within the stipulated timeframe.He wanted this area to be to be offered for bidding ona priority basis.

For the balance three finds covering an area of 316 sqkm, he agreed with RIL-BP that the DGH had not been insistingon drill stem test (DST) for confirmation of a discovery inthe past and had decided to rake up the issue of absence ofDST in case of D29, D30 and D31 finds after 8 months ofcommerciality documents being submitted and around 40 monthsfrom the discovery.

"There has been practice in the past not to insist for theDST for declaration of the commerciality (a prerequisitebefore investment plans are considered) by the DGH and acircular to that effect is still in existence," Moily wrote.He noted that RIL had submitted declaration ofcommerciality (DoC) for three finds within time and there wasdelay on part of the DGH in reviewing them."Therefore, a fair and balanced approach could be toallow the contractor to conduct DST now and review the DoC onthe basis of outcome of these tests," Moily wrote. Depending on the outcome, the matter may be taken upbefore the Cabinet Committee on Economic Affairs (CCEA) forits information, he added.

Source-On Request