Govt may have to send legal notice to RIL: Reddy

Oil Minister S Jaipal Reddy today said the government may have to send a notice to Reliance Industries to curtail cost-recovery at its KG-D6 gas fields as the company drilled fewer number of wells than planned.

"I think we may have to send notice but I do not want to commit until I get proper advise from the Law Ministry," he told reporters here.

The Oil Ministry and its technical arm the Directorate General of Hydrocarbons (DGH) blame fall in output from KG-D6 fields to 34.5 million cubic meters per day instead of 70.39 mmcmd planned for now and 80 mmcmd by April due to company drilling fewer number of wells than it has committed.

DGH wants $1.235 billion of out of the $5.7 billion expenditure already made in KG-D6 to be disallowed as RIL has drilled and completed only 18 wells as against agreed the 31 wells in the block, resulting in lower gas output.

"We are consulting our legal advisers (on sending the legal notice). Now it is for normal legal process to go through," he said.

Anticipating such a move, RIL had on November 24 slapped an arbitration notice saying the Production Sharing Contract allows 100% of expense to be recovered and has no provision to restrict cost recovery in proportion to output.

But the ministry and DGH feel RIL had "woefully" fallen short of drilling the required number of wells and/or utilising the total number of wells already drilled has taken an irreparable toll on the projected production targets.

They feel that had RIL performed its obligations under the PSC and the approved field development plan, the production rate ought to have been touching 80 mmcmd at present, rather than showing a gradual trend to decline.

Further, RIL drilled two wells in 2010-11 and another two wells in 2011-13. However, these have not been connected to production facilities, thereby resulting in less output.

The company has indicated that these wells would be completed and connected to the production facilities by mid 2013-14, which the ministry saw as clear non-compliance with the approved field development plan.

RIL says it has not drilled the committed number of wells as the reservoir has not behaved as predicted and output dipped due to a fall in pressure and water and sand ingress in wells.

RIL had appointed S P Bharucha, former Chief Justice of the Supreme Court, as its arbitrator and had asked the ministry to appoint its arbitrator within 30 days.

The ministry had days before the December 23 deadline expiry sought a one-month extension to respond to the notice and after receiving the Law Ministry's opinion, last month wrote to the company saying its claims are based on surmises, conjecture and apprehensions and RIL should withdraw the arbitration notice.