New Delhi, Jan. 3: The petroleum ministry today agreed to Reliance Industries’ $1.529 billion investment proposal to develop four satellite fields in its KG-D6 block off the Andhra Pradesh coast.
The government approval to the satellite fields could boost the output from Reliance’s KG basin blocks, which has steadily fallen in the past 15 month, as these can produce 10 million metric standard cubic meters per day (mmscmd) of gas by 2016.
Production from two crucial gasfields in the D6 block slipped to a low of 38.66 mmscmd, as the company had shut down five wells because of water ingress, after reaching a peak of about 60 mmscmd in March 2010.
Reliance, in a letter to the oil ministry last year, had sought conditional approval “contingent on submission of revised cost estimate and the contractor returning to the management committee for authority to proceed further.”
The permission was in part delayed because of a Comptroller and Auditor General’s report, which had alleged that the oil ministry and its technical arm, the Directorate General of Hydrocarbons, had allowed Reliance to escalate capital expenditure for the KG-D6 blocks resulting in “undue benefit” to the private firm at the government’s expense.
The KG-D6 block oversight committee, which includes officials from the oil ministry and the DGH, met for the third time in three months today to finally approve the proposal, sources said.
However, the government has put a cap on the cost of developing the four fields that surround the currently producing Dhirubhai-1 and 3 (D-1 & D-3) fields.
The cost cannot vary by more than 15 per cent from the stated costs.
The oversight committee had at its two previous meetings in November and December refused to approve the field development plan for the satellite fields — Dhirubhai-2, 6, 19 and 22 — after the government representative raised objections on the costing and other technical issues.
As a compromise, Reliance agreed to cap spending in the fields at $1.529 billion, plus or minus 15 per cent.
Reliance Industries had sought the approval to carry out geo-technical investigation, geo-hazard study, geo-mechanical study, concept study and front-end engineering and design, till it submits the revised capital expenditure plan.
“We request you to please give conditional approval to the optimum field development plan allowing the contractor (RIL) to undertake the activities,” Reliance had said in a letter to the oil ministry.
Reliance stated that the current weather conditions in the KG-D6 basin were favourable for carrying out these technical studies. If these studies were not conducted in the next couple of months, the project would be delayed by another year.
RIL has so far made 18 gas discoveries in the KG-D6 block.
Of these, D-1 and D-3 — the largest among the lot — were brought into production in April 2009, but the output has fallen sharply from 54 mmscmd, in March 2010, to 32.94 mmscmd this month. Together with 6.86 mmscmd of associated gas produced from the MA oilfield in the same area, total production from the block amounts to 39.80 mmscmd.