‘Treat RIL as defaulter for PSC violations at KG-D6’

A Parliamentary panel has asked government to treat Reliance Industries not drilling committed number of wells on the flagging KG-D6 gas fields as contractual ‘default’ and not just failure for taking remedial action.

Criticising Reliance Industries Limited (RIL) for the sharp drop in natural gas output from eastern offshore KG-D6 fields, the Standing Committee on Petroleum and Natural Gas in its report tabled in Rajya Sabha on Tuesday asked the oil ministry to explore all possible options and take corrective measures to increase production.

“Non-adherence by the contractor (RIL) to approved field development plan should be construed as ‘default’ and not just failure and remedial action by the Ministry in this regard must be premised on ‘default’ by the contractor and not on ‘failure’,” it said. The Ministry told the panel that 50 wells were to be drilled as per the field development plan submitted by RIL to produce from about 10 trillion cubic feet of reserves in Dhirubhai-1 and 3 (D1&D3) gas fields in the KG-D6 block. But RIL drilled less than half of them, leading to output starting to decline from 2011-12. The D1&D3 fields are producing tenth of 80 million standard cubic meters per day projected output in the development plan.

The ministry, according to the report, has not accepted RIL’s contention that the decline in gas production was not due to default in implementation of the agreed field development plan but due to downgrading of reserves. The contractor has also reasoned the decline to substantial variance in reservoir behaviour and higher pressure decline than envisaged. However, the ministry has disagreed and disallowed $2.376 billion in KG-D6 cost up to 2013-14 for the same and RIL has challenged it and the matter is under arbitration. The ministry said that all legally permissible steps will be taken to increase gas output from the block, and that termination of the contract was the last resort. It said the Production Sharing Contract (PSC) does not allow termination if an issue is still under arbitration. 

Reference is invited to the Article 30.6 of the PSC which reads as, “If the circumstance or circumstances that would otherwise result in termination are the subject matter of proceedings under Article 33, then termination shall not take place so long as such proceedings continue and thereafter may only take place when and if consistent with the arbitral award.” 

The Committee said it was “worried” and expressed unhappiness at the whole series of events. “The demand for increase in the price of natural gas by the contractor over and above the discovered price by arms length mechanism as provided in the PSC has also brought question mark regarding the interest of the contractor to abide by the sanctity and stability of the PSC,” the report said.