The KG-D6 Basin in the middle of a political battle right now. Even as the decline in output from the Reliance Industries Limited’s (RIL) owned blocks has been alleged to have been perpetrated by the company itself, the Directorate General of Hydrocarbons (DGH) has come and categorically stated that all approvals were given to RIL and its two foreign partners in KG D6 as per the production sharing contract (PSC) and that the time-lines had been followed. This comes on the back of a claim made by the Comptroller and Auditor General of India (CAG) that the DGH had absolutely no reason to award these blocks to RIL and classify them as ‘commercially viable.’ In fact, the DGH was quoted as having made the following statement, “The inference drawn by CAG relating to discovery area, continuity of exploration activities and appraisal programme in the contract area are incorrect and contrary to the provisions of the PSC.”
Wells in the KG-D6 Basin are operated by Mukesh Ambani owned-RIL and their business partners, BP (British Petroleum) and Canada’s Niko Resources. The regulator, in this case, DGH had allocated the status of ‘commercial’ on the D1, D3 and other blocks, which were discovered in 2002; meaning that the entity which had been awarded the contract could monetize the hydrocarbons present there.
The Comptroller and Auditor General claims in its draft audit report that the during FY09 to FY12, DGH gave the green light to RIL to extract gas from the D1 & D3 basins, classifying them as ‘commercial.’ It claims that RIL was given the go-ahead to operate these wells in the block KG-DWN-98/3 without sufficient appraisal, as per the mandate of the PSC. CAG also claims that the operator moved directly from discovery to ‘commercial discovery,’ while there should have been an appraisal exercise to validate the claims before commerciality was endorsed.
DGH Counters CAG’s Claims:
The DGH has strongly objected to the claims made by the CAG. It has stated that the exploration period of the KG-DWN-98/3 was from June 2000 to July 2008. Crucially, during this period the entity awarded the contract was obligated to only complete the minimum amount of work as per agreed in the PSC. And the operator, RIL did complete the work programme as per the PSC, the DGH iterated.
It was in May 2004 that RIL submitted an initial development plan (IDP) that envisaged an output of 40 mmscmd from 34 weeks. This was given the go ahead on November 5th of the same year. Oil production was expected to start from August 2006. During this time, RIL submitted an ‘addendum’ to the IDP that the production could possibly plateau at 80 mmscmd by mid-2008.
According to information submitted to the CAG, RIL was obligated to drill, connect and put on stream 22 wells. This was done to 18 wells but the remaining four, which were drilled from August 2010 to 2011 didn’t have enough deposits to merit linking them to the other 18. This, says the CAG should have raised flags at the DGH and has since led to allegations of under-production at KG-D6. As a result, both parties, have appointed arbitrators and the Supreme Court is considering the request for an umpire auditor by RIL.