In yet another setback to Mukesh Ambani-led Reliance Industries Ltd (RIL), the petroleum ministry has put on hold the company’s $3.5-billion (Rs. 21,350-crore) plan for integrated development of the gas discoveries in the NEC-25 block, off the Odisha coast.
The decision has been taken pending clarity on the policy, and the need for prescribed tests to confirm the discoveries of hydrocarbons in deep water exploration, as is the global practice.
Sources in the oil ministry said a new policy is being put in place to deal with the controversy over “confirmatory and technical” tests (also called as the drill stem tests or DSTs) required under the contract, for confirming a discovery by the operator of oil and gas fields.
A host of discoveries by RIL in the NEC-25 block together hold substantial gas reserves and according to the company’s integrated field development plan, at least 10 million standard cubic metres per day of gas can be produced from the four discoveries in the block by 2019.
However, RIL needs the approval of the oil ministry before starting work on its plan for NEC-25. The Directorate General of Hydrocarbons (DGH) — the nodal technical arm of the oil ministry — had earlier refused to approve RIL’s $3.5-billion plan for developing gas discoveries on the grounds that the company had not done the prescribed tests to confirm the finds.
“Since the matter is contingent upon the decision on the Cabinet note on DST, we may await the decision... Therefore, at this point, the petroleum mining license application of RIL for integrated block development plan cannot be considered,” an oil ministry official said.
Sources said RIL has argued that sustainable field production levels could be established through an integrated approach without carrying out individual DSTs.
The company further argued that as the NEC block is located in simple sandstone reservoir and is dry in nature, there was no need for DSTs to establish sustainable production levels.
The NEC-25 block will be the second major block of RIL to start production after the D6 block in the Krishna-Godavari basin. RIL holds 60% interest in the block, while British energy major BP and Canada’s Niko Resources hold 30% and 10%, respectively.
RIL has also been engaged in a tussle with the oil ministry over the diminishing gas output from KG-D6 and over the government purchase price for natural gas.