DGH blames RIL for not drilling its committed quota of wells for the fall in production

The Petroleum and Natural Gas Ministry has sought the opinion of the Law and Justice Ministry for imposition of an additional $781 million penalty on Reliance Industries Limited (RIL) for the shortfall in gas production in the KD D6 block during 2012-13.

Following disallowing of cost recovery by the Directorate General of Hydrcarbons (DGH) to the tune of $781 million for 2012-13, the Petroleum Ministry has moved the Law Ministry to seek opinion for levy of additional penalty on RIL, Petroleum Secretary, Vivek Rae told newsmen here. “We have already issued notice to RIL for a $1.005 billion penalty for shortfall in production during 2010-11 and 2011-12,” he added.RIL has moved the Supreme Court seeking initiation of arbitration proceedings against the imposition of this penalty.

Petroleum Minister Veerappa Moily has come under attack from the Opposition, including CPI MP, Gurudas Dasgupta, for trying to derail the arbitration proceedings against RIL in order to benefit the corporate house at the cost of the public exchequer. “For 2012-13, we are examining what needs to be done, whether the higher penalty is to be imposed and if so in what manner. We are seeking the advice of the Law Ministry right now,” Mr. Rae said

The DGH in July recommended to the Petroleum Ministry that $781 million of the cost RIL had incurred in KG-D6 fields should be disallowed for producing only an average of 26.07 mmscmd (million metric standard cubic metres per day) of gas as against the target of 86.73 mmscmd in 2012-13. This will be in addition to $1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12.

The arbitration proceedings have been hanging fire for more than a year now as the two arbitrators appointed by RIL and the government are yet to agree on a neutral presiding judge for the proceedings. As the previous penalty notices have invited arbitration proceedings, the Petroleum Ministry decided to move the Law Ministry to seek legal opinion.

The Comptroller and Auditor- General (CAG) and DGH have criticised RIL for not drilling its committed quota of wells for the fall in production that has resulted in a large chunk of production facilities lying unused or under-utilised. RIL has built infrastructure to handle 80 mmscmd of output but is currently producing less than 14 mmscmd.

The Petroleum Ministry had in May 2012 slapped a notice disallowing $457 million of cost till 2010-11 and $1.005 billion till 2011-12. The average gas production from KG-DWN-98/3 (KG-D6 block) during the current year should have been 86.92 mmscmd as per the approved field development plans for D1, D3 and MA fields in this block, which are currently on production. The output has dropped after hitting a peak of about 62 mmscmd in August 2010. The production has fallen as half of the wells of D1&D3 and a third of those in MA field have shut due to water loading/sand ingress.

The DGH had stated that after cost disallowance, RIL would be required to pay $114 million in additional profit to the government for 2012-13 in addition to $103 million that was already due.

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