Oil Min wants to recoup KG-D6 profit share from Panna fields

Govt believes RIL has to remit additional profit petroleum of $195 mn after $2.3 bn in KG-D6 expenditure was disallowed for output lagging targets

Oil Ministry is mulling recouping $195 million it believes is due from Reliance Industries in the flagging KG-D6 block from oil and gas it sells to public sector firms from the separate Panna/Mukta and Tapti fields.

The Ministry believes RIL has to remit additional profit petroleum of $195 million to the government after $2.376 billion in KG-D6 expenditure was disallowed for output lagging targets.

With RIL contesting cost disallowance and taking the matter to arbitration, the Ministry first asked Chennai Petroleum Corp Ltd (CPCL) and GAIL India Ltd, which used to buy oil and gas from KG-D6 block respectively, to deduct $195 million payments to be made to RIL.

But this plan could not materialise as the fall in output meant that GAIL no longer bought any of KG-D6 gas and CPCL had lost out on a tender to buy oil from the block.

The Ministry asked upstream regulator DGH to suggest possible alternatives for the recovery of $195 million, sources privy to the matter said.

The Directorate General of Hydrocarbons (DGH) on December 24 wrote to the Ministry saying Indian Oil Corp (IOC) and GAIL are buyers of crude oil and gas respectively produced from Panna-Mukta field, where RIL holds 30 per cent interest.

It suggested to the Ministry that the sale proceeds due to RIL for the sale of oil and gas from IOC and GAIL may be sought for recovering the additional profit petroleum, they said.

Since the arbitration proceedings on cost disallowance are yet to commence, DGH suggested that the government file an application for securing the amount in dispute as interim measures.

DGH also advised seeking an opinion of Solicitor General before deciding on the alternative remedy available, they said, adding that the Ministry has now sought the opinion of the legal officer.

The Ministry had disallowed $2.376 billion in cost for gas output from main fields in KG-D6 block falling short of target between 2010-11 and 2013-14. It calculated that the government should have got an additional profit share of $195 million.

To recover this, it wanted CPCL and gas utility GAIL India to deduct this amount from revenues due to RIL. GAIL has not bought any gas from KG-D6 since June 2013 and could not deduct any amount. CPCL too lost out the crude tender in May 2014.

RIL says the output from Dhirubhai-1 and 3 gas fields in KG-D6 block fell to about 8 million standard cubic meters per day instead of rising to projected 80 mmscmd because of unanticipated water and sand ingress shutting down most wells.

The Ministry and DGH, however, blame the output fall to RIL not drilling the quota of committed wells.