The government has rejected Reliance Industries' (RIL) proposal to invest in survey of all discoveries made in KG-D6 gas block, and has instead directed the company to restrict pre-development expenses only to fields that have been proved to be commercially viable.
RIL and its British partner BP Plc had proposed undertaking concept validation and Front End Engineering Design (FEED) for all the 16 gas discoveries surrounding the currently producing Dhirubhai-1 and 3 fields in the 7,645 sq km KG-DWN-98/3 or KG-D6 block.
But the block oversight committee, headed by upstream oil regulator the Directorate General of Hydrocarbons, on April 20 rejected the proposal saying pre-development investments can only be done in fields which have either been proved to be commercially viable or whose field development plan has been accepted by the authorities, sources said.
The Management Committee, which also has senior officials of the Oil Ministry as members, approved RIL-BP making the investment in the four satellite fields whose $1.529 billion FDP was approved in January, and on D-34 or R-Series field whose commerciality had been approved in February.
Sources said all investment in pre-development activities are deducted from revenues earned from gas sales before profits are split between the operator and the government. Any infructuous investment would restrict government profit take, the Management Committee (MC) felt.
In all, 18 gas and one oil discovery has been made in the KG-D6 block in Bay of Bengal. Of these two gas finds, D1 and D3, and one oil, D-26 or MA, have been put on production. Of the remaining 16 gas discoveries, commerciality of only five has been approved.
Commerciality is the first step to developing a discovery and essentially means the find holds enough reserves to be commercially produced at current rates.
Sources said DGH maintained that pre-development activities (FEED and concept validation) cannot be undertaken on D29, 30 and 31, whose commerciality was rejected a few weeks back.
RIL-BP felt a comprehensive survey on entire block would save cost and aid in drawing an integrated development plan for all the 18 finds by October. The integrated plan, they feel, would help in arresting flagging out from the block.
RIL began production from Dhirubhai-1 and 3 (D1&D3) fields -- the largest among the 18 gas and one oil find -- in April 2009, but output has fallen from a peak of 54 million standard cubic metres per day (mmscmd) in March 2010 to 27.64 mmscmd this month.
Together with 6.45 mmscmd of gas production from D-26 or MA oil field in the same area, block output is 34.09 mmscmd.