Govt to review RIL's cost on D6 on May 2

With the government toughening its stand on falling gas production from Reliance Industries’ (RIL’s) D6 block in the Krishna-Godavari (KG) basin, it has decided to review the cost-recoverability of the company's expenditure on the field. The ministry of petroleum and natural gas will review the cost recoverability on the basis of actual use of infrastructure by RIL instead of the committed works.

A meeting of the management committee on May 2 will discuss the issue of non-drilling of wells according to the field development plan and restricting the cost recovery of development activities by linking it to the infrastructure put to use, said a senior ministry official. The committee will also discuss the issue of poor performance of the D1 and D3 fields — the two main producing fields in Krishna Godavari (KG) D6 block.

The company has drilled two wells during the last financial year but has not put them to production. Directorate General of Hydrocarbons (DGH), the country’s upstream oil regulator, has directed the company to drill two more wells and connect the four wells in the current quarter. The FDP envisaged 22 operational wells by April 2011 against which RIL has been operating only 18 wells.

An independent review of the KG-D6 block commissioned by the DGH recently pointed out that the non-drilling of four additional wells has caused the decline in production.

The report, submitted to the government last week, attributed the slow pace of field development as the reason production has fallen to 50 million standard cubic metres a day (mscmd) from a peak of 60 mscmd last year.

The government’s gas allocation to critical sectors like power, fertiliser, steel, etc has gone haywire due to the declining gas output at the country’s biggest oil producing field. RIL has so far signed up customers for 60.76 mscmd of gas while production is around 50 mscmd including the MA field.

The government had accorded highest priority to fertiliser plants followed by LPG extraction units, power plants and city gas distribution projects in allocating KG-D6 gas. With fall in production, RIL has cut supplies to all the customers on a pro-rata basis. But the government has directed RIL to divert gas from sectors like steel and petrochemicals to fertilizer and power in accordance with union gas utilization policy.