KG-D6 output fall due to geological complexities: RIL sources | business | Hindustan Times
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KG-D6 output fall due to geological complexities: RIL sources

business Updated: May 26, 2012 22:00 IST

Refuting allegations that it has artificially suppressed gas production at KG-D6 fields, Reliance Industries today hit out at oil ministry for not honouring contractual commitments on natural gas pricing.

Company sources said the fall in output from eastern offshore KG-D6 field to 32-33 million standard cubic meters per day from 61.5 mmsmd two years ago was due to geological complexities and reservoir not behaving as predicted.

The output has fallen because of water and sand ingress in wells and reservoir outside the main channel not participating in the production, they said, adding such erratic and unpredictable behaviour of something which is 2-km below the seabed forced the company to halt drilling of well and do more studies before putting more investment.

All drilling cost is recoverable and if the company had gone for indiscriminate drilling, the government's profit take would have been impacted, they said.

"We are not suppressing production. If anything, it is the government which is suppressing price," one of them said.

He said the letter the company got from the government approving USD 4.205 per million British thermal unit as the price of KG-D6 gas, clearly stated that if RIL was to get a higher price than the approved rate, the higher would be used for calculation of profit petroleum etc.

This essentially meant that the government was open to RIL selling gas at higher rates, he said adding the company is seeking market price for its gas.

RIL blamed the oil ministry for artificially suppressing gas prices paid to domestic producers saying the ministry was happy paying USD 16-18 per million British thermal unit for import of liquefied natural gas (LNG) but does not want domestic companies to be paid remunerative prices.

"Need of the hour is to restore contractual sanctity," a source said citing from the Production Sharing Contract (PSC) which guarantees market price and marketing freedom.

Sources said the company was eager to resolve the dispute over cost recovery through arbitration and has requested the government to quickly appoint arbitrators.

There was no provisions in the PSC to link cost-recovery to production, they said in reference to the notice oil ministry served on RIL disallowing USD 1.005 billion expenditure for failing to drill 9 out of the committed 31 wells.

The PSC, they said, allowed operators to recover all their cost from oil and gas production and the ministry move was illegal.

The dispute can be settled through arbitration, they added.