RIL proposes to drill KG-D6 probe well at own cost

Firm says this is a one-time move, stands to lose cost recovery rights under PSC

Desperate to reverse the falling output at its KG-D6 block, Reliance Industries has proposed to drill the first exploration well in almost five years in the flagging gas fields at its own cost.

Dhirubhai-1 and 3 (D1&D3) gas fields, the largest among the 18 gas finds on the KG-DWN-98/3 or KG-D6 block, have proved to be more difficult to produce than previously predicted and RIL now wants to drill a probe well on the fields to study reservoir characteristic, sources said.

Fearing that Oil Ministry may not give permission to drill exploratory well 'MJ1', RIL has proposed to sink the well on sole-risk basis. Sources said RIL, as a onetime exception, is willing to drill at its sole risk and cost recovery only if the discoveries are assessed to be commercial.

RIL believes that exploration well is clearly allowed in any mining lease area under law and the Production Sharing Contract (PSC) also supports it.
 
This concession by RIL amounts to giving up its rights for cost recovery available under the PSC in order to provide comfort to the Government in the spirit of taking things forward.
 
The company has, however, pointed out that such delayed and conditional cost recovery would not be taken as a precedent in future.
 
D1&D3 reservoir has seen sharper-than-expected drop in pressure and water and sand ingress in production wells, leading to a drop in output.
 
RIL, sources say, proposes to drill exploration well in the D1-D3 development area to probe the Mesozoic synrift clastic reservoir lying below the D1-D3 (Pliocene) Mining Lease area.
 
D1&D3 have seen output fall from 53-54 million standard cubic metre per day achieved in March, 2010 to about 23 mscmd this month. Together with 6 mscmd output from MA oilfield in the same block, KG-D6 is producing about 29 mscmd.
 
The output from KG-D6 is short of the 70.39 mmscmd-level (61.88 mmscmd from D1 and D3 and 8.5 mmscmd from the MA field) envisaged as per the field development plan approved in 2006.
 
While Reliance holds 60 per cent interest in KG-D6, UK's BP Plc holds 30 per cent and Niko Resources of Canada holds the remaining 10 per cent.
 
Sources said in its proposal to the Directorate General of Hydrocarbons (DGH), RIL pointed out to the block oversight panel, called the Management Committee, resolution of December 12, 2006 that approved the $8.8 billion development plan for D1&D3, for seeking approval for the exploratory well.
 
The resolution had stipulated that consent of the DGH was needed for all future exploratory wells in the D1-D3 Development Area.
 
So, RIL has submitted the proposal for the exploratory well to the DGH along with all the required information / data as per the requisite format, they said.