The Management Committee that oversees the operations of Reliance Industries KG-D6 Block has not adopted the audited accounts for the last three years.

This has lead to speculation on the reasons behind the non-approval as well as whether this could mean the account be open for review again.

Besides, the Budget of $242.65 million (revised estimate) for 2010-11 is also waiting the Committee's nod since December 2009.

Those associated with oil and gas exploration and production business say that it has been noticed that globally also adoption of accounts for bigger blocks can take two to three years, as it involves lots of checks, verifications, and issues of jurisdiction.

“In the case of D6 Block, the drop in output from the producing fields and delay in getting approvals has put strain on investments. The operator is unable to make fresh investments,” an oil industry official said.

The company has already invested close to $5.69 billion. As regards the recent reports indicating that the Ministry for Petroleum & Natural Gas may recover $1.85 billion out of the $5.69-billion investment already made in the facilities, industry observers say, “this again is not something new. Budgets are disallowed globally. But, in this case, it was contrary to the production sharing contract norms, as there is no provision for partial cost recovery.”

arbitration notice

To pre-empt such a move Reliance Industries has sent an arbitration notice to the Ministry. The Ministry was proposing to disallow expenditure incurred in constructing production and processing facilities at D-1 and D-3 gas fields in the D6 block that are currently under utilised and have excess capacity because of drop in output. This was contrary to the production sharing contract norms.

Reliance has come in for severe criticism for its inability to check the falling output from the gas fields in the D6 block. Recently, Reliance has roped in British firm, BP, as a partner to use its deepwater expertise.

The company is currently producing 42 mscmd from the gas fields and this is expected to further drop. In the arbitration notice, Reliance Industries has said all investments in the exploration, development and production of hydrocarbons from D6 Block were made by the company and its foreign partners at their own risk and not by the Government.

The partners are entitled under the production-sharing contract with the Government of India to recover their full costs from the revenues generated by production from the Block.

According to Reliance, the investment made in the production facilities has been only partly recovered and the return on the investment so far is less than the cost of capital.

The operator has been suggesting that the only solution available was for it is to develop the satellite fields around the currently producing fields in the block and bring them to production.

So far five gas fields have been discovered in D6 block. Of this, two (D-1 and D-3) are producing. At the recent management committee, commerciality of the Dhirubhai-34 gas fields was agreed upon.

richam@thehindu.co.in

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