DGH, RIL spar over fall in KG-D6 gas output

Oil regulator DGH and Reliance Industries today exchanged barbs over fall in production at India's largest gas field with the two sides differing on the issue of drilling more wells to solve the problem.

The Directorate General of Hydrocarbons (DGH) and the Oil Ministry were critical of Reliance for drilling only 20 out of the committed 22 wells by April 2011 while the Mukesh Ambani- run firm was of the opinion that more wells would not be able to solve the problems of falling pressure at its eastern offshore KG-D6 reservoir.

With DGH and Oil Ministry trying to pin it down at the three-hour long meeting of the Management Committee that overseas operations of the Krishna Godavari basin fields, Reliance stated that more wells would only drain the same reservoir and would not help raise output.

DGH Director General S K Srivastava said Reliance and its Canadian partner Niko Resources in the Field Development Plan (FDP) have committed to drill 31 wells on Dhirubhai-1 and 3 fields in the KG-D6 block by April 2012 to raise output to 80 million standard cubic meters per day.

Reliance is currently producing 40 mmscmd from 18 out of the 20 wells drilled on D1 and D3 fields. Another 8 mmscmd is being produced from the MA oil field in the same block.

"We have suggested that they meet whatever commitment (they made) in the approved FDP," Srivastava said. "They will come back with a proposal (on drilling more wells)."

Another MC meeting would be called in 2-3 weeks, he said.

Sources said that DGH at the MC meeting tried to push for Reliance being disallowed to recover only a part of its multi-billion investment in the KG-D6 fields, but it had to back off when he was told such the Production Sharing Contract (PSC) does not allow for such a move.

Reliance had built production facilities to support 80 msmcmd of production but output from D1/D3 and MA field is hovering at 48-50 mmscmd. So, DGH wanted cost recovery of only two-third of the capital spent in building those facilities.

PSC allows operator to recover investment made in developing the field before sharing profits among the stakeholders, including the government.

But any move to change cost recovery norm would be possible only through an amendment to the PSC, which can be done only with the approval of Parliament.

"They (Reliance) have to come up with a proposal to drill more wells," Srivastava said adding DGH wanted the company to drill wells in outer area of the field and not on the main channel which is facing declining pressure.

Asked if Reliance has been asked to rework the $8.836 billion investment it has proposed in the FDP, he replied in negative. "FDP is only a guidance estimate."

Reliance has so far spent only $5.6 billion.