The Oil Ministry of India is looking to petition before the Cabinet to allow Reliance Industries Limited (RIL) to remain in control of three gas blocks in the KG-D6 Basin. These blocks worth $1.45 Billion are located in the eastern offshore KG-D6 blocks. This comes on the back of the Directorate General of Hydrocarbons (DGH) seeking to bar RIL from these wells on account of the Mukesh Ambani company’s inability to prove their commerciality.
The Oil Ministry, looking at the bigger picture is rather wary about holding a fresh auction for these wells this would lead to a delay in the development of the reserve which holds 345 billion cubic feet of gas reserves. As a result, it’s seeking relaxation of rules towards RIL. This along with the high probability of RIL going for arbitration could lead to additional delay and increase costs further is what the Ministry is concerned about.
RIL is in a great position because it already has infrastructure in place at many other wells in the KG-D6 basin. As a result, these wells under scrutiny can be put into production sooner than expected. Going by the current price of $4.2 per British thermal unit, they hold reserves worth $1.45 billion. With regards to inter-ministerial consultations, the Oil Ministry headed by VeerappaMoily is likely to seek approval from the Election Commission. After comments are received from the finance and law ministries besides the planning commission, it will be put to the Cabinet Committee on Economic Affairs (CCEA) for approval.
While the Oil Ministry has rightly sided with RIL in the greater interest of increasing production substantially, it however is refusing to budge on the Drill-Stem Test (DST) on the D29, D30 and D31 discoveries. Additionally, only half of the $93 million will be allowed to be cost recovered. If the Cabinet does approve this, the same can be expected to be applied for RIL’s North-East Coast Block, NEC-0sn-97/1 which holds a staggering 1.032 cubic feet of reserve.
The KG-D6 area has seen the government interfere with RIL on many occasions. Apart from the recent gas price issue, the Centre has also allowed RIL and its partners British Petroleum (BP) and Niko Resources to retain only 1, 4462.12 square kilometres of the total area of 7,645 kilometres. Further, the area that was taken away contained five discoveries – D4, D7, D8, D16 and D23. Strangely, the DGH was of the opinion that RIL had missed deadlines for submission of investment plans. The five discoveries together had 0.805 Tcf of reserves, or about one-fourth of the restated reserves in the currently producing Dhirubhai-1 and 3 (D1&D3) fields in KG-D6 block.