Reliance Slapped $1.25 bn Penalty for KG-D6 Gas Output Decline

Reliance Industries has been slapped a penalty of $1.25 billion for a fall in gas production from its KG-D6 block.

The government in its notice said that the company had violated the production sharing contract (PSC) and wilfully drilled fewer wells than what it had committed in the plan.

"This is to bring to your notice that you have failed to fulfil your obligations under the terms of the PSC and have deliberately and wilfully caused breaches, which have led to immense loss and prejudice to the government and the people of India. You have, over a period of time, failed to adhere to the terms of the PSC and have repeatedly failed to meet your targets under the PSC," the oil ministry said. 

The government and investors have been concerned for months over Reliance's declining gas output from its main D6 fields in the Krishna-Godavari basin off the coast of eastern India.

The reports said Reliance would not be permitted to recover the cost of its investments — $457 million in 2010-11 and $778 million in 2011-12 — from the sale of gas.

Under India's exploration policy, the government allows firms to first recover their exploration and production costs from oil and gas revenues, and later share profits with the government.