DGH refuses to approve RIL spending on KG-D6

In a surprise move, the Directorate General of Hydrocarbons (DGH) has refused to approve Reliance Industries’ spending on KG-D6 gas fields unless the Mukesh Ambani-run company agrees to drill more wells on the prolific gas block.

The DGH, which has to approve exploration and production spending on a block at the beginning of the financial year, has been holding back approval for Reliance’s 2010-11 budget for several months.

Reliance gave revised spending on the eastern offshore KG-D6 block for 2010-11, along with proposed budget for the current year, but DGH sent it back seeking a recast, sources in know of the development said.

DGH, they said, wants Reliance to include the cost of drilling of two more wells on the Dhirubhai-1 and 3 gas fields (D1, D3), first of the 18 gas discoveries that have been put into production, in the budget.

This despite being told that expenditure on additional wells would be a drain as they would be tapping the same pool of resources. The 18 wells are capable of recovering resources on the D1 and D3 fields and additional wells would not help in raising output, sources said.

While a Reliance spokesperson declined to give comments, DGH Director General S K Srivastava did not take calls made to seek comments.

DGH has been unhappy over Reliance’s inability to stick to the approved Field Development Plan (FDP) for D1 and D3 gas fields in the KG-D6 block, leading to significantly lower level of gas production from what was okayed.

According to the FDP, Reliance was meant to put 22 wells on stream by April, 2011 to achieve a production level of 61.88 million standard cubic meters per day (mscmd). The plan envisaged an output of 80 mmscmd from a total of 31 wells by April 2012.

But the situation on the ground is markedly different from what was promised. As of today only 18 wells are in production.

Output too from these wells — at 43.44 mscmd instead of the planned 53.4 mscmd — are lower than what was inscribed in the FDP.

Reliance, however, says drilling more wells will not solve the drop in production which was a result of fall in pressure and increased water stream in the wells.

The company has submitted all technical data supporting its claims but DGH does not seems satisfied.

Sources said DGH has also lowered the in-place reserves at Reliance’s NEC-25 deepsea block off the Orissa cost. While Reliance had pegged in-place reserves at about 5 trillion cubic feet (tcf), DGH says only 3.5 tcf resources are present in the discoveries the company has made so far.

DGH now wants Reliance to recast the field development plan for the discoveries in the NEC-25 accordingly,they added.