RIL may ask govt for refund of investment in KG-D6

Reliance Industries may ask the government for a refund of its investment if it is forced to give up any part of the prolific KG-D6 block as it has spent a huge sum of money on exploration after obtaining necessary permission to retain the entire 7,645-sq km area. The Comptroller and Auditor General (CAG) had slammed the Oil Ministry and its technical arm, the DGH, for allowing RIL to retain the entire block when as per the contract, it was to relinquish 25% of the area in 2004 and a similar area in 2006. The Production Sharing Contract (PSC) gives the contractor the right to retain that part of the block where he feels petroleum exists. By the end of the first phase of exploration in 2004, RIL had made 11 discoveries in the KG-D6 block and felt the hydrocarbon channels were spread over the entire block and thus, the entire area should be considered as a 'discovery area'. The claim of RIL was first examined by the Directorate General of Hydrocarbons (DGH) and then by a committee headed by then Additional Secretary in the Oil Ministry S Sundareshan. Both agreed with RIL's contention and the company was allowed to retain the entire block area. Having obtained the necessary approvals, RIL invested heavily in the block to establish about 40 trillion cubic feet of in-place reserves. If it is now asked to relinquish or give up any part of the KG-D6 area, RIL feels it is naturally entitled to a refund of the investment it has made in that part of the area. Following the CAG report, there is a thinking in the government that RIL should be asked to surrender between 25% and 50% of the KG-D6 block.According to sources RIL feels the entire relinquishment debate is needless as the company is permitted to produce oil or/and gas from only a limited 'Development Area' decided at the time of approval of the field development plan (FDP) and all excess area would be relinquished. So far, only two of the 18 discoveries has been put on to production and the FDP for the others is either under consideration of the government or under formulation. RIL, which had made 11 discoveries in the KG-D6 block by the end of Phase-1 in 2004, felt hydrocarbon channels were spread over the entire block and thus the entire area should be considered as a 'discovery area.' The DGH, which had in early 2004 asked RIL to relinquish 25% of the area, asked RIL to do a 3D seismic survey over the entire block to prove its point. Subsequently, the DGH-headed KG-D6 block oversight committee, on July 11, 2006, agreed with the opinion of the contractor (RIL) that the prospective geological plays had continuity in the entire block and hence, no block area needed to be relinquished. Subsequently, the issue was examined by the Additional Secretary Committee and once it endorsed the view of the DGH, RIL was allowed to retain the entire 7,645 sq km block in the Bay of Bengal as a discovery area.