Reliance cautions on further dip in KG-D6 output

With KG-D6 output hitting an all- time low, Reliance Industries has warned that production will continue to decline as government is not approving investments needed to boost output.

RIL also threatened it would seek damages for the drop in output which was a direct result of government not approving several of its investment plans for the flagging gas fields.

While the government-controlled block oversight committee is supposed to approve spending before beginning of a fiscal, in case of KG—D6 budgets and work programmes for 2011—12 as well as 2012—13 have so far not been approved, the company’s counsel wrote to the Oil Ministry.

Listing six interventions it had planned in the KG—D6 to arrest output decline, it said these were “critical to the maintenance of production at the current levels” but have so far not been approved by the block Management Committee.

“Should the government decide not to approve these costs on an urgent basis through its representatives on the Management Committee, the production from Block KG—D6 will continue to decline as a direct result of the government’s decision and RIL will be forced to seek all appropriate relief including damages,” it added.

In a letter, the company’s counsel A S Daya & Associates on June 8 point—by—point rebutted the charges that the ministry had levied in imposing a penalty of $1.005 billion for current output of 31.57 million standard cubic meters per day falling way short of the target of 80 mmscmd.

Refuting charges of violation of Production Sharing Contract, RIL’s counsel stated that indicative output targets were given in $8.8 billion approved field development plan of 2006 “based on present day knowledge of the reservoir“.

The Krishna Godavari basin reservoir has proved to be more difficult to exploit than previously predicted with high water and sand ingress in wells hampering production.

Oil Ministry holds RIL responsible for the fall in output and last month disallowed $1.005 billion of its cost already incurred saying lower production had led to under— utilisation of facilities.

“There is no basis under the PSC to limit the contractor’s recovery of its contract costs by reference to either the production levels achieved or the extent to which any facilities installed by the contractor may not be fully utilised,” it said.

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