KG-D6 GAS DIS­PUTE MAY COST RELIANCE IND OVER $1.2 BIL­LION

GOVT GRAP­PLING TO FIX COM­PEN­SA­TION FOR GAS MI­GRA­TION FROM ONGC FIELDS

Resource Digest - - RESOURCE DIGEST -

Reliance In­dus­tries Ltd and one of its part­ners in the KG-D6 block — Niko Re­sources — may end up pay­ing the gov­ern­ment about $1.25 bil­lion as com­pen­sa­tion for ben­e­fits they derived from the nat­u­ral gas that al­legedly mi­grated from ONGC’S ad­ja­cent fields in the Kr­ishna-go­davari Basin off the Andhra Pradesh coast.

Of­fi­cials re­main tight-lipped about the mon­e­tary com­pen­sa­tion payable by RIL. How­ever, the buzz is that Mukesh Am­bani’s com­pany and its part­ner in the block may be asked to pay com­pen­sa­tion of that mag­ni­tude.

Sources said the Direc­torate-gen­eral of Hy­dro­car­bons (DGH) had, in its first draft, given the in­dica­tive num­ber of $1.25 bil­lion to the Min­istry for Petroleum and Nat­u­ral Gas. The DGH has been work­ing on the mon­e­tary com­pen­sa­tion based on the rec­om­men­da­tions and model sug­gested by the sin­gle-mem­ber Jus­tice AP Shah Com­mit­tee.

In­di­ca­tions are that the fig­ures have been derived based on cal­cu­la­tions in re­spect of gas price and vol­ume done on a monthly ba­sis, and after de­duct­ing the roy­alty, cess and profit petroleum that the con­trac­tors have paid the gov­ern­ment on the pro­duce so far.

A TOUGH CALL

Sources said that the gov­ern­ment will not find it easy to de­ter­mine the pre­cise amount of com­pen­sa­tion, which in any case will be open to chal­lenge by the con­trac­tors.

For in­stance, be­tween April 2009 and March 2015, the roy­alty cal­cu­la­tions rose from 5 per cent to 10 per cent; the vari­ance could in­flu­ence the de­ter­mi­na­tion of the com­pen­sa­tion. Sec­ond, it’s not clear what the gas price will be taken as. The pre­vail­ing gas price — $4.2/unit (gas is mea­sured in mil­lion Bri­tish ther­mal units) — is in dis­pute. Whether the gov­ern­ment will work within the terms of the pro­duc­tion shar­ing con­tract (PSC) or out­side it is not known, sources said.

DEVIL IN THE DE­TAILS

Both Reliance In­dus­tries and ONGC will want to read the fine print of any gov­ern­ment for­mu­la­tion be­fore re­spod­ing to it. ONGC be­lieves that the Shah panel has been un­fair to it.

Con­firm­ing the con­ti­nu­ity of reser­voirs, the com­mit­tee had said that in­de­pen­dent con­sul­tant De Goyler & Mac Naughton’s re­port must form the ba­sis for the mi­gra­tion of gas up till 2015, and that mi­gra­tion of gas post-2015 has to be in­quired into by the gov­ern­ment.

QUAN­TI­FY­ING THE MI­GRA­TION

It had quan­ti­fied the amount of gas that mi­grated from Go­davari PML and D1 dis­cov­ery area of ONGC’S KG-DWN-98/2 to RIL’S Block of KG D6 from April 2009 to March 2015. It also quan­ti­fied the amount of gas that is likely to fur­ther mi­grate from April 2015 to March 2019. The D&M re­port found that up to 15 per cent of the gas could be­long to ONGC.

It cal­cu­lated that from April 2009 till March 2015, about 7.009 bil­lion cu­bic me­tres and 4.116 bil­lion cu­bic me­tres of gas had mi­grated from the Go­davari PML and D1 dis­cov­ery of ONGC’S acreage to RIL’S block. Of this, 5.968 bil­lion cu­bic me­tres and 3.015 bil­lion cu­bic me­tres, re­spec­tively, were pro­duced. The re­serves in the D-1 and D-3 fields of the Reliance-bp-niko KG D6 block to­tal 2.9 tril­lion cu­bic feet, of which 2.1 tril­lion cu­bic feet or more have been ex­tracted.

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