BW Communities

Fire Behind The Smoke

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Directorate General Of Hydrocarbons (DGH) has locked horns with India's biggest private oil company Reliance Industries (RIL) over the fall in gas production from the Krishna-Godavari D6 fields from a high of 69 million metre standard cubic metre a day (mmscmd) in 2009-10 to just 37 in 2010-11. The fields were to hit a peak of 80 mmscmd by FY 2012-13, which looks a distant dream now. "They are giving us an explanation for the depletion. (It) is not satisfactory," says director general of hydrocarbons S.K. Srivastava. The RIL spokesperson refused to comment. The two sides have been warring ever since DGH questioned RIL's move to hike the capital expenditure on the fields from Rs 12,000 crore to Rs 45,000 crore. The regulator refused to approve RIL's annual spends at KG-D6. While both sides are grappling with each other over numerous disputes, the latest is about DGH asking RIL why it hasn't dug the wells that it was supposed to to maintain the level of production. As per the field development programme (FDP), the operator (RIL) had to drill 22 wells by now. RIL has completed only 18 wells (two others are being drilled). The issue is not as simple, says a source close to RIL. "Health of the wells should not be compromised and both DGH and the company would have to work with far-sightedness. The company had tied up with British Petroleum, which has deep-water experience. Government clearance is expected by May. Hopefully, work will start in the second quarter of FY11-12." DGH and industry observers see a pattern in these arguments. Production sharing contracts are designed such that initially the private operator gets a larger share of production, while the government gets a minor share. This is to allow the private operator to recover its capex. DGH and industry rivals believe that the delay is deliberate and is meant to make the most of the widely expected increase in the price of gas. Oil and gas producers are hoping APM (administered price mechanism) — at which gas is sold to consumers — may be revised upwards from the current $4.21 per million metric British thermal units (mmBtu). Industry rivals believe the higher production is being timed to that. <table style="width: 600px;" align="center" border="1" cellpadding="5" cellspacing="5"> <tbody> <tr> <td> LINE OF FIRE DGH: RIL should have completed drilling of 22 wells by 1 April 2011 RIL: Completed drilling of 18 wells, two drills were dry. Worried about the health of the block DGH: RIL should have followed the field development programme (FDP) RIL: Provided data, but DGH says it does not match the FDP DGH: RIL should step up gas production to the approved level of 61.88 mmscmd, and maintain commitment for non-priority sector as well RIL: Gas production is at nearly 50 mmscmd; cannot provide gas to non-priority sector, which requires an additional 7-8 mmscmd of gas DGH: DGH has held up the budget for RIL for KG-D6; work programme for 2011-12 is also on hold. DGH wants the cost of drilling additional four wells in the budget RIL: The work programme submitted to DGH does not speak of this DGH: Work programme and budget for 2012-13 may be revised so that the production targets are met as per the approved FDP RIL: Yet to decide on this DGH's position RIL's position mmscmd: million metric standard cubic metre per day </td> </tr> </tbody> </table> Meanwhile, an independent review by consultant P. Gopalakrishnan, commissioned by DGH, has said the delay in drilling the four wells led to fall in production. By the next financial year, RIL has to drill 31 wells. The DGH has not approved the FDP submitted by RIL for the previous financial year either. "We have not rejected it, but have told the officials to make it according to the approved FDP," says Srivastava. DGH is not the only one worried about the shrinking output. The Ministry of Petroleum and Natural Gas (MoPNG) has already raised an alarm after the industries that had been allotted gas from the block cried foul. "We have taken up the matter with various ministries concerned and are in touch with the company to sort out the matter," says an MoPNG official. Meanwhile, a three-member team of DGH had gone to KG-D6 fields to review well-wise production and reservoir performance. The team is expected to share its inferences with DGH, and would grill the RIL officials at a joint meeting called by the ministry on 5 May. anilesh(dot)mahajan(at)abp(dot)in (This story was published in Businessworld Issue Dated 09-05-2011)