How did RIL get into KG basin? Reliance's tryst with eastern offshore

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The petroleum ministry recently imposed a fine of $1.55 billion on the Mukesh Ambani-owned Reliance Industries for illegally extracting natural gas from ONGC fields in the Krishna-Godavari Basin. Here is a snapshot of Reliance’s tryst with controversies in the Eastern Offshore region:

What is KG-D6 basin?

The Krishna-Godavari sedimentary basin is spread across 50,000 sq km in the river basins of Krishna and Godavari, onland and offshore along the Andhra Pradesh coast. The site Dhirubhai-6 (D6) is where Reliance Industries Ltd (RIL) made the biggest gas discovery in India in 2002 and started production of crude oil in May 2008 and natural gas in April 2009. 

How did RIL get into KG basin?

The Union government opened up hydrocarbon exploration and production to private and foreign players in 1991. Following this, the government gave out bigger blocks in 1999 as per the New Exploration and Licensing Policy (NELP). RIL bagged the rights to explore the KG-D6 block under the first round. 

Various penalties on RIL and the reasons

The expected gas output from the Dhirubhai-1 and 3 wells in the KG-D6 block was supposed to be 80 million standard cubic metre per day (mmscmd), but the actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The current production is around 8 mmscmd.

Profit petroleum penalty

Profit petroleum is the source of revenue for government from a hydrocarbon block. It is the promised share to the government from earnings after revenue has been recovered. The government has imposed a profit petroleum penalty of $246.9 million till March 31, 2015.

Cost recovery disallowed

In a cost-recovery model, a company starts sharing income with the government only once its exploration and development costs have been covered.

In 2011, the Mukesh Ambani-led RIL had initiated an arbitration process anticipating that the government would impose a penalty on the explorer for not meeting output targets. Following this, the government started disallowing cost recovery. Till March 31, 2015, the total cost recovery disallowed comes to $2.756 billion.  

Gas migration penalty

Last week, the Dharmendra Pradhan-led ministry of petroleum and natural gas has slapped a fresh penalty of $1.55 billion on RIL and its partners BP and Niko for commercially producing state-owned Oil and Natural Gas Corporation's share of natural gas in the KG basin. RIL’s KG-D6 block sits next to ONGC’s lease area. According to a D&M report, over 11.2 billion cubic metres of gas had migrated from ONGC’s idling KG fields to RIL area.