RIL Likely to Get Approval to Develop Satellite Gas Discoveries
The Indian government is set to approve Reliance Industries' long pending proposal to develop four satellite discoveries in the D6 block with some conditions on Tuesday, the Economic Times reported Monday.
This development is expected to fast track reversal of dwindling output from India's biggest gas fields by adding additional 10 million metric standard cubic meters per day output.
The approval will be conditional that the development cost would not fluctuate by more than 10-15% than the original estimates.
RIL had estimated about $1.5 billion expenditure in developing the four smaller discoveries spread around the giant D1 and D3 producing fields on the basis of 2006 prices.
While RIL is willing to surrender a part of the D6 block in line with the national auditor's report, the government officials have expedited approvals to develop new discoveries to save fertilizer and power sector consumers of D6 gas. The gas output from D6 has dropped to 39 mmscmd from over 60 mmscmd in March 2010, forcing its consumers to import gas more than four times costlier than the D6 gas.
Officials said that the delay in approval was also due to fear of scrutiny by investigative agencies that have little knowledge of geology of the block. "Therefore, we are carefull in approving capex this time," one official said.
"The range of cost escalation is being put this time to avoid any allegation of unprecedented cost escalation at the later stage," the official added.
Capex of D1 and D3 was raised from $2.4 billion to $8.8 billion in two years following doubling of output estimates to 80 mmscmd. The jump in the capex attracted severe criticisms from several parliamentarians and finally the oil ministry invited the CAG scrutiny.
The project approval was also delayed because the oil ministry and its technical arm, DGH, were unwilling to include around $30 million pre-development cost in the field development plan.
Finally, DGH has agreed to include pre-development activities in the plan citing the GSPC's precedence in the neighbouring KG-OSN-2001/3 block, which the government had approved in Nov 2009, officials said. Expenditures incurred on the basis of approved field development plan are cost recoverable as per the New Exploration Licensing Policy (Nelp). In other words, the operator will first recover its approved costs by selling oil and gas produced from the block before sharing profit with the government.
Government and industry officials said while several contentious issues are still pending, the government is keen to quickly raise natural gas output and has given several positive signals, starting with Oil Minister Jaipal Reddy's December 9 statement that the government would not unilaterally change its contract with RIL to penalise it for falling output in KG-D6.
Top Reliance executives recently held meetings with ministry officials to ease tensions, which had escalated after the company initiated arbitration proceedings fearing the government would change the contract, officials said.
At a recent meeting, oil ministry officials told DGH not to deliberately obstruct Reliance's proposals to develop new gas pools in the D6 block.