Four RIL discoveries fail to get nod

Despite a meeting of more than three hours on Friday, the management committee overseeing Reliance Industries Ltd's KG-D6 gas block in the Krishna-Godavari basin did not approve commercialisation of four more of its discoveries in the same area.

A source said the meeting ended without any decision on the issue. The approval of what is termed ‘commerciality’ would have paved the way for investment of around $1.5 billion in developing the four discoveries.

The management committee has representation from the government, its director general of hydrocarbons and the company. RIL is also running the risk of being partially disallowed cost recovery on the already producing D1, D3 and MA fields. Eight months into the financial year, the management committee (it approves the expenditure and monitors oil blocks) has not cleared the expenditure for the country's biggest gas producing field. Normally, the approval comes in the first quarter of the financial year, claimed a source. The approval for annual expenditure is among many other pending.

The person, who did not want to be named, said some of the plans that have been sent for approval may now need a fresh look after BP formally comes on board as holder of a 30 per cent participating interest in RIL blocks. "The consortium may need to file addendums to the plans already submitted to the MC, in case the new partner feels the need for it," he added.

RIL had earlier this week slapped an arbitration notice on the government, pre-empting it from disallowing a portion of the costs since the gas field is producing less than the volumes projected earlier. Cost recovery allows a company to deduct costs from production before sharing revenue from it with the government. The higher the cost recovery, lower the profit share.

The company said resolution of the cost recovery issue was important, so as not to hinder future investment in the block. In the arbitration notice, Reliance stated the move to limit the amount of expenditure the company could recoup from the KG-D6 fields was illegal and outside the Production Sharing Contract.

Besides the annual budget for the D6 field during 2011-12, approvals are required for development plans of R-series and satellite discoveries. RIL plans to invest up to $2.338 billion to produce about 15 million standard cubic metres a day of gas from the R-Series gas field in the same block.

The Dhirubhai-34 discovery, known as the R-Series field, has gross in-place gas reserves of 1.64 trillion cubic ft, which, according to Reliance, can be brought into production in four to five years. The MC approval is required for declaring the discovery as commercially viable. Further development of the discovery can only happen after this approval. Besides, field development plans for four satellite fields that will involve investment of $1.529 billion for producing up to 10 mscmd of gas from the Dhirubhai-2, 6, 19 and 22 (D-2, D-6, D-19 and D-22) fields in the KG-D6 block by 2016 is also awaiting approval.