Going into an overdrive, the government has called an official meeting next week to review reasons for the fall in production at Reliance's KG-D6 fields, and has ordered the company to stop natural gas sales to non-priority users like Essar Steel.
A meeting of the management committee, that overseas the operations of the KG-D6 fields, has been called next week to 'ascertain reasons' for Reliance Industries Limited not meeting its drilling commitment and the drop in production, Oil Secretary S Sundareshan told reporters in New Delhi.
Reliance had in 2006 won government nod to invest $8.836 billion in Dhirubhai-1 and 3 fields in KG-D6 block after promising an output of 61.88 million cubic meters a day from 22 wells by April 2011 and 80 mmscmd from 31 wells by 2012.
But situation on ground has been markedly different with Reliance only producing about 42 mmscmd from 18 wells drilled so far on D1 and D3 field in the Bay of Bengal block. Another 8 mmscmd is produced from MA oilfield in the same block.
"A formal meeting has been called next week in which representatives of the oil ministry, the directorate general of Hydrocarbons and the contractor (Reliance) will be present," he said.
"After ascertaining the reasons, we will take appropriate measures.
"These are fields which have come into production after monumental effort. . . we do not come to abrupt judgements on these matters," he said when asked if the government was contemplating levying any penalty.
"It is difficult at this juncture to comment on why production has fallen (and) it is too premature to talk of action," he said.
Sundareshan did not elaborate on the 'measures' the oil ministry would take, but sources said the Production Sharing Contract does not provide for levying of any financial penalty on a firm not meeting its drilling commitment during production stage.
The PSC provides for levy of liquidated damages only in case a company does not meet the commitment it had made for getting the block.
Penalty is levied for the part of the minimum work programme, committed at the time of bidding for the block, that is not completed.
KG-D6 wells have over the past one year shown increased water production and some of the them are on the verge of ceasure.
Also, there has been fall in pressure at the wells.
Sundareshan said Reliance has been asked to immediately stop natural gas sales to Essar Steel, Welspsun Maxteel, Ispat Industries and petrochemical and refineries so that full demand of core sectors of fertiliser and power is met.
"There is no question of any contractor not abiding by government instructions," he said adding Reliance would abide by
Of the 57.17 mmscmd of gas for which contracts have been signed, 9.57 mmscmd has been cornered by steel, petrochemical and refineries sector.
Essar Steel draws 3.2 mmscmd, Welspun Maxteel 0.40 mmscmd and Ispat 0.59 mmscmd.
Besides, Reliance's petrochemical plant gets 1.17 mmscmd and a sizeable 4.21 mmscmd goes to refineries, including the Jamnagar units of Reliance.
Sundareshan said the government had initially allocated 40 mmscmd of gas only to fertiliser, power, LPG extraction units and city gas distribution firms.
When output went up, additional users in steel, refineries and petrochemical sector were added.
And now when the output has fallen to around 50 mmscmd, it is natural for the government to go back to allocation made to the priority sector, he added.
Oil regulator directorate general of hydrocarbons has already sent a fact finding mission to KG-D6 fields to ascertain reasons for the decline in production.
The three-member team lead by Gautam Sinha, head of production at DGH, will review well-wise production and reservoir performance of KG-D6 fields.
Reliance says output has dipped after touching 61.5 msmcmd achieved in March last year due to falling pressure at wells and that drilling more wells will not solve the problem as it will tap the same resource.
The regulator wants Reliance to drill 11 wells this fiscal, including two wells that were to be drilled last year.
Reliance holds 90 per cent interest in the block KG-D6, where 18 gas and one oil discovery has been made. D1 and D3 gas and MA oil finds have so far been put into production.
Niko has the remaining 10 per cent in the block.
DGH has refused to approve investment budget for KG-D6 unless Reliance agrees to drilling the 11 committed wells even as the latter has projected that output from D1 and D3 fields will fall to 38 mmscmd from current 42 mmscmd in 2012-13.
As per the approved Field Development Plan, production in the block was to go up to 86.92 mmscmd in 2013-14 and decline in output is to set in from 2018-19.
The field is expected to produce gas for a total of 13 years, i.e. till 2022.
D1 and D3 have seen output fall from 54 mmscmd achieved in March 2010 to 42-43 mmscmd at present.
The MA oilfield in the same block is producing about 8 mmscmd of associated gas.
Together, the current output from KG-D6 stands at 50 mmscmd.
