Reliance Industries and BP plc on Tuesday won approval for over $1 billion expenditure in the flagging KG-D6 gas block but were ordered to drill more wells at their own cost before three gas finds can be declared viable.
The much-awaited meeting of the Oil Ministry-controlled oversight panel that overseas operations at KG-D6 fields, decided to approve annual operating and capital expenditure for three years beginning April 1, 2010, with minor changes, sources privy to the development said.
But the Management Committee (MC) asked RIL-BP combine to drill more wells to confirm the three satellite gas finds -D-29, 30 and 31 in the KG-D6 block.
The appraisal wells would have to be drilled by RIL-BP at their own cost for which the government will not allow any cost recovery, sources said.
Oil Minister S Jaipal Reddy, who was not part of the MC meeting, stated before the two-and-a-half hour long oversight panel meeting ended that RIL-BP would get conditional approval to develop gas finds in the Krishna Godavari basin block.
"Whatever the contractor needs technically, administratively to raise production, we will do. Approvals will be given subject to conditions," he said, without elaborating.
RIL had in February 2010 submitted the Declaration of Commerciality (DoC) of D-29, 30 and 31 discoveries. But the Directorate General of Hydrocarbons, which chairs the MC, rejected them saying the contractor (RIL) had not done its prescribed test to confirm the discoveries.
The appraisal wells on the three ring-fenced finds would have to do Drill-Stem Test (DST) to establish sustainable production levels and submit data to DGH for verification, sources said adding once DGH is satisfied, the government would be approached for allowing cost recovery.
Once the finds are declared commercial, RIL-BP would piece together an integrated development plan for the three finds together with 13 other discoveries, they said.
RIL is the operator of KG-D6 block with 60 per cent stake while BP has 30 per cent interest. Niko Resources of Canada has the remaining 10 per cent stake.
The MC, which normally has to approve work programme and annual budgets before beginning of a fiscal, made some changes in 2010-11, 2011-12 and 2012-13 spendings on Dhirubhai-1 and 3 gas fields as well as MA oilfield in the KG-DWN-98/3 or KG-D6 block.
Sources said the changes in 2010-11 budget had been made because DoC for the three finds had not been accepted. Also, the cost of drilling one well during the current fiscal was also reduced before approving the investment.
RIL and BP have been for some months now pressing for convening a meeting of the MC, where the oil ministry has significant presence, to get clearance for several pending investments that can help reverse the declining gas production at KG-D6.
Also, the MC discussed this year's spending on the R-Series gas field in the KG-D6 block.
With gas output at three currently producing fields of D1&D3 and MA, in KG-D6 block halving to about 29 million cubic meters a day in the past two years, RIL and its partner BP of UK are pinning hopes on developing satellite fields to reverse the trend.