CAG draft report: Ministry approved KG-D6 without enough appraisals

In a damning indictment, the CAG has said Oil Ministry and its technical arm DGH approved notification of now flagging gas discoveries in Reliance Industries' KG-D6 block despite the company not doing enough appraisal.

[caption id="attachment_1406105" align="alignleft" width="380"] File photo of the KG-D6 plant. Agencies.[/caption]

RIL had found gas in the Dhirubhai-1 and 3 wells in October 2002 and were declared commercially viable finds between April 2003 and March 2004. It in May 2004 claimed the finds to hold 8.3 trillion cubic feet (tcf) of inplace gas reserves, the CAG said in a draft audit report of KG-D6 block.

The DGH approved a $2.47 billion initial development plan for the two finds by lowering the inplace reserves to 5.45 tcf and recoverable resource to 3.81 tcf with first gas coming in August 2006.

However, before the start of commercial production, RIL in October 2006 submitted changes in the development plan by raising the capex requirement to USD 8.8 billion in two phases and putting recoverable reserves at 12.04 tcf out of inplace volumes of 14.164 tcf.

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A management committee, comprising representatives of DGH, oil ministry and the operator, in December 2006 approved the revised plan putting recoverable reserves at 10.03 tcf and

doubling of output to 80 million standard cubic metres a day.

However the fields, which began production in April 2009, did not behave as predicted and output slumped within a year, forcing RIL and its new partner BP to restate the reserves at 2.9 tcf.

The CAG in the report said the production sharing contract stipulates that a contractor should submit an appraisal programme to reassess the extent of the discoveries.

"There was no appraisal programme in respect of D1&D3 gas discoveries as required under PSC. The operator moved directly from discovery to commercial discovery. Appraisal programme would have enabled the operator to delineate the petroleum reservoirs to which the discovery related in terms of thickness and lateral extent besides determining the characteristics thereof and quality of recoverable petroleum therein," it said in the report.

The CAG said it was not clear how DGH had assured itself of the reliability of the development plan, as well as the estimates of reserves, production rates and costs in absence of the appraisal programme.

D1 and D3 output has fallen to about one-tenth of the 80 mmscmd production that RIL had estimated for this time.

"It is not clear how DGH had ensured accuracy and realistic nature of the data before agreeing to the approval of Addendum to the Initial Development Plan (AIDP)," the auditor said.

The CAG has sought comments of the Oil Ministry on its draft report before finalising a Performance Audit report.

PTI