Oil Min to move Cabinet note to allow RIL retain three gas discoveries

May seek EC approval before approaching CCEA

The Ministry of Petroleum and Natural Gas has proposed allowing Reliance Industries Ltd (RIL) to submit a revised declaration of commerciality (DoC) for three of its discoveries in the KG-D6 block —D29, D30 and D31.

To proceed with a Cabinet proposal to grant the relaxations to RIL, the Election Commission’s approval will be sought. If the commission doesn’t grant an approval, RIL will have to surrender the D29, D30 and D31 discoveries due to a technical disagreement with the Directorate General of Hydrocarbons.

The production-sharing agreement for these discoveries has expired.

In February 2010, RIL had provided a DoC, which the DGH had rejected due to no data on drill stem test (DST), a flow test carried out to assess the reservoir behaviour and the flow of oil or gas to the surface. The DGH had said DST was a technical and a contractual requirement.

With similar expiries of timelines for two other RIL blocks, owing to disagreements between DGH and RIL on the issue of DST, the ministry plans to recommend similar relaxations. These blocks includeNEC-OSN-97/2 and KG-DWN-2003/1.

The three discoveries in KG-D6 have estimated reserves of 345 billion cubic feet (bcf) of gas, valued at $1.45 billion at a price of $4.2 per million British thermal units. In the case of NEC-OSN-97/2, the reserves in four discoveries stand at 1,032 bcf ($4.34 billion) and for KG-DWN-2003/1, it is 274 bcf ($1.15 billion). However, monetisation of these discoveries is possible only when the government grants certain  relaxations.

According to the ministry’s proposal, yet to be finalised, RIL will submit a revised DoC within a year of the Cabinet Committee on Economic Affairs’ approval in this regard, failing which it will have to give up its right to develop the discoveries. After making an oil or gas discovery, a contractor submits a DOC to an oversight committee, called the management committee, after it assesses data to establish the viability of extractable reserves.

RIL will get an additional year to submit a field development plan for these discoveries. Under the production-sharing contract, if a contractor doesn’t start developing a discovery within 10 years of the first discovery, it has to relinquish that area, which will then be counted as outside the contract area.

The first discovery in the KG-D6 block was made in October 2002. Since the 10-year period expired in 2012, RIL will need the two-year relaxation.

The petroleum ministry is considering penalising RIL by disallowing the cost recovery of half the DST expenses. Under the New Exploration and Licensing Policy, oil and gas explorers are allowed to recover expenses from production, before they offer a share to the government.

In addition to these proposals, the ministry is also planning an amendment to the policy notified in February 2013 for exploration in mining lease area, after the expiry of the exploration period. The proposed amendments are expected to address industry concerns on the policy notified last year.

CABINET COMPLICATIONS

• To proceed with a Cabinet proposal to grant the relaxations to RIL, the Election Commission’s approval will be sought
• If the commission doesn’t grant an approval, RIL will have to surrender the D29, D30 and D31 discoveries due to a technical disagreement
• With similar expiries of timelines for two other RIL blocks, the ministry plans to recommend similar relaxations