RIL arbitration notice: OilMin seeks time till Jan 31

The Oil Ministry has sought an extension of over one month in the deadline to respond to the arbitration notice issued by Reliance Industries (RIL) against proposed penal action for a fall in KG-D6 gas output.

The Oil Ministry on Wednesday wrote to RIL seeking time till January 31 to respond to the arbitration notice, sources privy to the development said.

RIL had in the November 24 arbitration notice termed the ministry's move to limit the amount of expenditure the company can recoup from its flagging KG-D6 fields in proportion to the gas production as illegal and outside the Production Sharing Contract (PSC).

As per the dispute resolution mechanism set out in the PSC, the government had one month's time to respond to the notice and appoint arbitrators. RIL and the government have the right to appoint one arbitrator each. A third neutral adjudicator was to be appointed by the two arbitrators.

RIL would have got the right to appoint an arbitrator on behalf of the government if no response was made within the one month timeframe.

Sources said the Oil Ministry wants to consult the Law Ministry on the arbitration notice and appointment of arbitrators and accordingly sought an extension of the deadline.

The ministry was moving toward restricting cost-recovery -- now at 100% -- in proportion to gas output from the KG-D6 fields.

RIL has built facilities to handle 80 million cubic metres per day of gas production, but the fields are producing less than half of that due to a fall in reservoir pressure and water ingress.

As per the 2006 field development plan, where capital expenditure in Dhirubhai-1 and 3 fields was hiked to $8.8 billion from $2.47 billion previously, RIL was to produce 61.88 mmcmd gas from 22 wells by April this year and 80 mmcmd from 31 wells by 2012.

RIL stopped drilling in D1&D3 after the last four of the 22 wells drilled in the fields yielded non-commercially exploitable volumes and decided to do more studies.

However, Oil Minister S Jaipal Reddy last week insisted in Parliament that all 31 wells outlined in the development plan must be drilled by March, 2012, blaming the production decline on the failure to do so.

At the same time, he also admitted that four wells in D1&D3 had stopped producing because of water incursion and sand deposits and one of the six wells in the MA field of the same block has been shut because of water incursion.