The impasse over the alleged hoarding of gas by Reliance Industries at the D6 block in the Krishna-Godavari Basin continues with the oil regulator not agreeing to appoint a neutral, international consultant to validate the gas and ultimate reserves in the basin. While the oil ministry has agreed to allow RIL to appoint an international consultant to validate the reserves, it will lack legality as it would be outside the mandate of the management committee (MC). This is because the government fears that allowing for a second consultant to validate the reserves might compromise the arbitration process of disallowing cost recovery.
The MC comprises representatives from the operator of the field (RIL I in this case), regulator Directorate General of Hydrocarbons and the oil ministry.
Sources in the oil ministry said that while RIL is free to appoint the consultant, it has to be outside the purview of the MC as the production-sharing contract (PSC) does not allow for any such appointment a second time to validate the reserves.
Earlier, the MC had warned that engaging another consultant to verify the decline in gas production from the KG-D6 fields would compromise the arbitration process of disallowance of cost recovery and the PSC has no such provision.
The DGH had earlier already engaged a consultant and, therefore, the MC feels that there is no need to appoint a new consultant. The DGH had appointed international reservoir expert P Gopalakrishnan in 2011 to review the performance at KG-D6.
Gopalakrishnan in his report has blamed RIL for the fall in production from the field owing to non-drilling of adequate number of wells as per the field development plan.
The DGH has blamed RIL’s failure to drill committed wells for the gas output falling by over 80% from the KG-D6 block, instead of rising to the planned 80 million metric standard cubic metres per day (mmscmd). On the other hand, RIL is of the view that the reserves have dropped due to previously unknown geological factors and the undrilled quota of 11 wells would not increase production.
The MC resolution has said that the government has already agreed to arbitration under Article 33 of the PSC on the question of disallowance of cost recovery due to a decline in production, downgrading of reserves and attendant issues. “Hence appointment of another body is redundant and will compromise the arbitration process,” the MC resolution states.
The oil ministry will soon move a Cabinet note seeking to prevent RIL from charging a higher price until it can be ascertained that the deficit was the because of geological reasons.
RIL officials state that Indian consultants do not have the expertise to study deep-water blocks like the KG-D6 as the country has little experience in producing from such challenging terrain. The KG-D6 field is the only significant deep-water producing asset in the country.
“If the government is citing the PSC to say that no international expert can be appointed to verify reasons for fall in KG-D6 output, then how was the one-man reservoir expert Gopalakrishnan appointed by DGH and on whose recommendations were RIL and BP being penalised?” asked an RIL official.
A KG-D6 block oversight panel headed by the DGH had earlier refused to take a view on appointing renowned reservoir consultants Ryder Scott, DeGolyer and MacNaughton, Gaffney, Cline & Associates or Netherland, Sewell & Associates to validate reasons for the fall in gas output.