The Hindu Business Line : KG Basin reserves: DGH asks Niko to respond in 15 days

The Managing Committee for the Niko Resources and Reliance Industries Ltd (RIL) assets in KG Basin has asked the Canada-based Niko Resources to explain the reasons for violating the production sharing contract (PSC) by announcing gas reserves in the block without informing the Committee first in 15 days.

The Managing Committee, headed by the Directorate General of Hydrocarbons (DGH), which held an emergency meeting on June 30, asked Niko Resources, partner of RIL in the KG Basin block, to respond in 15 days from the date of the issue of the communication, on how an announcement on reserves could be made when even the partner has not made any announcement nor has the Committee been informed.

The announcement

Niko announced an increase in its estimate of the in-place natural gas reserves in the KG D6 block by 197 per cent to 35.4 trillion cubic ft. Surprisingly, no mention was made of the huge increase in reserves in the RIL annual general meeting held on June 27. Reports of the increase came in from Calgary, when Niko Resources, which owns 10 per cent in the block, declared its annual results. Soon after the announcement, the DGH shot off a letter to Niko and the Toronto Stock Exchange, where Niko is listed, on how the company announcement on reserves was in violation of the regulatory requirement in India.

The DGH, Mr V.K. Sibal told Business Line, "The announcement was in clear violation of the PSC. We are partners in the PSC, as the developers of the field have signed a contract with us. Moreover, the Government is the owner of minerals, oil and gas and the contractors are paid in kind (percentage in sharing) rather than in cash."

The Managing Committee, which is responsible for every aspect pertaining to the development of the asset, itself was caught unaware, he stated. As per the estimates available, in-place reserves at the D6 blocks stood at 11 trillion cubic ft. A statement posted on the Niko Resources Web site said that an independent engineering report by Gaffney, Cline and Associates at the end of financial year 2006 has "increased the high estimate of gross original natural gas in place for the D6 block to 35.4 trillion cubic ft from 11.9 trillion cubic ft."

However, the issue leaves many questions unanswered, including what happens if the Managing Committee finds a contractor in violation of the PSC. Currently, under the PSC there is no provision for explicit penalty.

According to the disclosure norms for announcing oil and gas discoveries, exploration companies will be able to make announcements of oil or gas discoveries only after it is vetted either by the market regulator or other designated authority.

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DGH issues notices to RIL, Niko

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