After a stormy two-and-a-half-hour meeting between officials of Reliance Industries and its partner BP with petroleum ministry officials,petroleum minister Veerappa Moily assured them that,now that he had heard both sides,a decision would be announced soon.
At the meeting,RIL-BP officials RIL executive director PMS Prasad and BPs India head Sashi Mukundan made a presentation on why the Directorate General of Hydrocarbons (DGH) was wrong in asking it to relinquish nearly 86% of its KG-D6 gas block including eight promising new discoveries. RIL-BP said that the DGH was wrong in asking it to conduct a ‘drill stem test’ since the production sharing contract (PSC) gave RIL-BP the option of what tests to do. And when RIL agreed to do the test,Prasad told Moily,DGH chief RN Choubey and petroleum secretary Vivek Rae,the DGH said it had run out of time to do so. RIL officials also said that while the discoveries had been made 40 months ago,the DGH had not asked for a drill stem test till now.
Prasad also pointed out that while this applied to three discoveries,another five discoveries had been rejected by the DGH on the grounds that they were not viable at the current gas price of $4.2 per mmBtu. RIL officials reiterated what Prasad had written to Moily last month,that the DGH was wrong to have looked at the viability based on a $4.2 price since,under the Rangarajan formula,the price would now be higher.
While the DGH said it was within its rights to examine viability based on current prices,Prasad said the DGH had just cleared a GSPC proposal based on a $5.6 price.
As per the normal terms of such contracts,a firm is given a period of 8 years in which to do exploration and the balance 17 years of the PSC are to be used for development. So,if the DGH refuses to accept discoveries as commercially viable,firms have to surrender the area.
After the meeting,petroleum secretary Rae told reporters a management committee meeting would be held in the next one week to sort out all issues. He said that while the ministry was keen to monetise the fields RIL had discovered gas in,the ministry would not compromise on any legal issues,suggesting RIL may have to relinquish its blocks. RIL officials have also argued that for a certain number of years,when few rigs were available in the global market,the government had declared a rig holiday when the exploration period was extended automatically. RIL officials say a clerical mistake prevented this from being applied to its KG Basin.
According to RILs letter to Moily,giving up the gas fields could cost the company over $10 billion of potential revenue based on current import prices for LNG.
There was no discussion on RILs NEC-25 fields where the DGH has asked it to relinquish areas as there have been no discoveries as in KG Basin,the DGH has rejected RILs finds since there were no drill stem tests.