Drying wells put pressure on Reliance Industries

The Directorate General of Hydrocarbons (DGH) has recommended that an additional penalty of $781 million be imposed on Mukesh Ambani-led Reliance Industries Ltd (RIL) for falling short of the target fixed for natural gas output from its eastern off-shore KG-D6 fields during the financial year ended March 31, 2013. This takes the total fine imposed on the company for the short-fall in the KG Basin natural gas output over the last three years to $1.8 billion.

A senior official of the petroleum ministry confirmed that the DGH last month recommended to the ministry that RIL should disallowed a deduction of $781 million from the cost that it is allowed to recover for the development of the fields because the company had produced an average only 26.07 million metric standard cubic metres per day (mmscmd) of gas against the target of 86.73 mmscmd, which had to be delivered in 2012-13.

The fine will be in addition to $1.005 bil-lion in cost recovery already disallowed for the shortfall in output target during 2010-11 and 2011-12. DGH had in a July 22 letter proposed disallowance of cumu-lative cost recovery amounting to $1.786 billion for the three-year period towards cre-ation of excess capacity, the official said. The DGH has blamed RIL for not drilling its committed number of wells, which led to the decline in production. Consequently, a large proportion of production facilities were lying either unused or underutilised.

According to the production sharing contract, RIL and its partners BP Plc and Niko Resources are allowed to deduct all the capital and operating expenses from sale of gas before sharing profits with the government. A senior ministry official told Mail Today that the DGH's recommendation is under consideration and the government is also keeping mind that RIL has gone in for arbitration over the earlier cost recovery disallowance.

DGH has stated that after cost disallowance, RIL would be required to pay $114 million in additional profit petroleum to the government for 2012-13 in addition to $103 million already due.

Courtesy: Mail Today