Reliance Industries ready to give up most of KG-D6 block

Petroleum Minister M. Veerappa Moily might be patting himself on his back for ordering the Reliance Industries (RIL)-led consortium to relinquish roughly 80 per cent of the 7,645 sq km KG-D6 gas block off the eastern coast. He blamed the company for not completing the requisite development programme.

But while the area to be surrendered appears large, the company was ready to give up most of it. RIL officials say they had informed the government in April that they would give up about 56 per cent of the "low prospectivity area" and would retain only the portion where oil and gas discoveries have been made.

In fact, in September the company also agreed to relinquish more areas. The company wants to retain 19 discoveries - 18 gas and one oil. This includes the currently producing Dhirubhai-1 and 3 (D1&D3) gas and MA oil and gas fields. In fact, after announcing the January-March quarter financial results, RIL had said a "proposal for relinquishment of low prospectively area (has been) submitted" to the government.

According to the production sharing contract, operators are required to relinquish 25 per cent of the area in an oil and gas block at the end of first phase of exploration that spans some three years. Subsequently, in the second phase, 50 per cent of the area has to be returned, and later in the final third phase operators can retain only the developed areas. Both the second and third phases are of two years duration.

RIL, along with its consortium partner Niko Resources, got this block in June 2000 and the three phases ended in July 2008 but the Directorate General of Hydrocarbons (DGH) declared the entire 7,645 sq km as discovered area, permitting the company to retain the full area. The Comptroller and Auditor General (CAG) subsequently objected to the move.

The operator is allowed to retain 12 discoveries, including three which are at the production stage. Moreover, it is also allowed to keep two more discoveries which are at different stages of production.

RIL officials say that they are pushing for retaining five more gas discoveries, which might not be viable at the existing $4.2 per mmbtu price, but would be competitive under the proposed new pricing formula. These include D4, D7, D8, D16 and D23 - they together have an estimated 823 billion cubic feet of recoverable gas. The DGH had declared these five blocks unviable at the existing price of gas.

"We will be taking legal opinion on this, and would take suitable decision to safeguard our interests," says an informed RIL official. But these five are part of the area the petroleum ministry has asked RIL to relinquish.