RIL TRYST WITH EAST­ERN OFFSHORE

HERE IS A SNAP­SHOT OF RELIANCE’S TRYST WITH CON­TRO­VER­SIES IN THE EAST­ERN OFFSHORE RE­GION

Resource Digest - - RESOURCE DIGEST -

The petroleum min­istry re­cently im­posed a fine of $1.55 bil­lion on the Mukesh Am­bani-owned Reliance In­dus­tries for il­le­gally ex­tract­ing nat­u­ral gas from ONGC fields in the Kr­ishna-go­davari Basin. Here is a snap­shot of Reliance’s tryst with con­tro­ver­sies in the East­ern Offshore re­gion:

WHAT IS KG-D6 BASIN?

The Kr­ishna-go­davari sed­i­men­tary basin is spread across 50,000 sq km in the river basins of Kr­ishna and Go­davari, on­land and offshore along the Andhra Pradesh coast. The site Dhirub­hai-6 (D6) is where Reliance In­dus­tries Ltd (RIL) made the big­gest gas dis­cov­ery in In­dia in 2002 and started pro­duc­tion of crude oil in May 2008 and nat­u­ral gas in April 2009.

HOW DID RIL GET INTO KG BASIN?

The Union gov­ern­ment opened up hy­dro­car­bon ex­plo­ration and pro­duc­tion to pri­vate and for­eign play­ers in 1991. Fol­low­ing this, the gov­ern­ment gave out big­ger blocks in 1999 as per the New Ex­plo­ration and Li­cens­ing Pol­icy (NELP). RIL bagged the rights to ex­plore the KG-D6 block un­der the first round.

VAR­I­OUS PENAL­TIES ON RIL AND THE REA­SONS

The ex­pected gas out­put from the Dhirub­hai-1 and 3 wells in the KG-D6 block was sup­posed to be 80 mil­lion stan­dard cu­bic me­tre per day (mm­scmd), but the ac­tual pro­duc­tion was only 35.33 mm­scmd in 2011-12, 20.88 mm­scmd in 2012-13 and 9.77 mm­scmd in 2013-14. The cur­rent pro­duc­tion is around 8 mm­scmd.

PROFIT PETROLEUM PENALTY

Profit petroleum is the source of rev­enue for gov­ern­ment from a hy­dro­car­bon block. It is the promised share to the gov­ern­ment from earn­ings after rev­enue has been re­cov­ered. The gov­ern­ment has im­posed a profit petroleum penalty of $246.9 mil­lion till March 31, 2015.

COST RE­COV­ERY DIS­AL­LOWED

In a cost-re­cov­ery model, a com­pany starts shar­ing in­come with the gov­ern­ment only once its ex­plo­ration and de­vel­op­ment costs have been cov­ered.

In 2011, the Mukesh Am­bani-led RIL had ini­ti­ated an ar­bi­tra­tion process an­tic­i­pat­ing that the gov­ern­ment would im­pose a penalty on the ex­plorer for not meet­ing out­put tar­gets. Fol­low­ing this, the gov­ern­ment started dis­al­low­ing cost re­cov­ery. Till March 31, 2015, the to­tal cost re­cov­ery dis­al­lowed comes to $2.756 bil­lion.

GAS MI­GRA­TION PENALTY

Last week, the Dhar­men­dra Prad­han-led min­istry of petroleum and nat­u­ral gas has slapped a fresh penalty of $1.55 bil­lion on RIL and its part­ners BP and Niko for com­mer­cially pro­duc­ing sta­te­owned Oil and Nat­u­ral Gas Cor­po­ra­tion's share of nat­u­ral gas in the KG basin. RIL’S KG-D6 block sits next to ONGC’S lease area. Ac­cord­ing to a D&M re­port, over 11.2 bil­lion cu­bic me­tres of gas had mi­grated from ONGC’S idling KG fields to RIL area.

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