Govt approves RIL's $1.5 bn KG-D6 satellite field plan

The government today approved Reliance Industries' (RIL) $1.529 billion investment plan for developing four satellite fields in the flagging KG-D6 block after sitting on the proposal for months.

The investment plan, which will help boost falling output in the Krishna-Godavari Basin KG-D6 block, has been pending with the authorities for two years and it took some prodding from top government functionaries for it to be cleared.

The KG-D6 block oversight committee, which includes officials from the Oil Ministry and its technical arm, the Directorate General of Hydrocarbons (DGH), met for the third time in three months today to finally approve the proposal, sources privy to deliberations at the so-called Management Committee (MC) meeting said.

The MC approval, which is the final approval an operator needs before beginning work, however, puts a cap on the cost of developing the four fields that surround the currently producing Dhirubhai-1 and 3 (D-1 & D-3) fields in the KG-D6 block.

The cost cannot vary by more than 15%, they said, adding that the investment proposal was signed by the three partners in the block -- RIL, UK's BP Plc and Niko Resources of Canada -- and the representative of DGH, while the Oil Ministry official is likely to sign it in the next couple of days.

The MC had at its two previous meetings in November and December refused to approve the field development plan (FDP) for the Dhirubhai-2, 6, 19 and 22 (D-2, D-6, D-19 and D-22) fields after the government representative raised certain objections.

Sources said BP Chief Executive Bob Dudley last month wrote to Oil Minister S Jaipal Reddy stressing on the need for early approvals for the plan, without which one full year would be lost as the fair weather window in the Bay of Bengal only permits field developmental work between December and March.

The four fields can produce 10 million cubic metres of gas per day by 2016, which will help shore up output from the block, which has seen a 35% decline in production in the past 15 months.

The MC had in its last meeting on December 2 refused to approve the investment plan, saying the proposal made in December, 2009, was based on the prices of that year and new rates needed to be worked out at the current prices.

Sources said RIL and its partners, UK's BP Plc and Niko Resources of Canada, felt reworking the rates would require several months and would lead to the loss of the weather window.

As a compromise, RIL agreed to cap spending on the four fields at $1.529 billion, plus or minus 15%.