It was not immediately known if he had indeed raised the issue which his company says is contrary to signed contract during the meeting which took place in the Parliament House.The company spokesperson did not immediately respond to calls seeking his comments.

The Petroleum ministry is currently calculating the amount of expenditure they will disallow as punishment for fall in output at KG-D6 fields.

Oil Secretary G C Chaturvedi had on Tuesday stated that the ministry will in 3-4 weeks take action to limit the amount of expenditure Reliance can recoup from its KG-D6 fields.
Agencies

CAG did not give us an opportunity and access to look into its comments on the draft report and finally the CAG did not consider and include the company’s repines, Reliance Industries (RIL) Group President V Balasubramanian said in the letter. CAG ignored the operational and technical facts and data as well, he added.

CAG in its report had stated that the contract was violated by RIL was allowed to retain the entire 7,645 sq km of its KG-DWN-98/3 (KG-D6) block in the Bay of Bengal after the giant Dhirubhai-1 and 3 gas finds were made in 2001. PAC is examining the CAG report.

Attaching a six-page detailed note on the CAG report, RIL in its letter dated September 26 stated that CAG was “short-sighted” in criticising the company for non-relinquishment of the area and declaring the entire area as discovery area.

“… The retention of the area is strictly as per the Production Sharing Contract (PSC) and in line with the geological knowledge of the book,” it said. RIL said no material relating to operational and technical matters relating to the KG-D6 block was sought from the company even though the CAG report has commented on them.

Stating that it was not given access to the full draft report of CAG for comments, the company said extracts that were previously held were only provided after the official auditor held the so-called ‘Exit Conference’ on July 12 to conclude the audit.

RIL was given just a week to respond and the company “did its best to send as complete a response given the time allotted”.  Unfortunately, the CAG refused to consider any response submitted by RIL after the Exit Conference. Therefore, the fact is that CAG, for reasons best known to it, chose to ignore operational and technical fasts and data,” it wrote.

On non-relinquishment of block, RIL said: “Retention of discovery area is a geological issue and not an accounting issue. As such it is best settled by technical experts, which was also done in this case. CAG made no attempt to or even gave RIL the opportunity to explain how in geological terms the entire block did quality to be declared a Discovery Area as per the PSC.”

“Retaining acreage as Discovery Area in effect entails no benefit to the contractor,” it said adding RIL is willing to make a presentation to the CAG on the issues brought out by CAG.
Agencies

The DGH has faulted RIL for not drilling its committed 22 wells on Dhirubhai- 1 and 3 fields in KG-D6 block and also for gas output falling from 61 million cubic metres per day (mmscmd) in March, 2010, to 37.5 mmscmd, instead of rising to 61.88 mmscmd as had been planned.

DGH and the Oil Ministry want RIL to drill the two remaining wells of phase-I development of D1 and D3 fields and 9 more of phase-II by March 2012 as had been committed by the company in the US $8.8 billion field development plan it got approved in 2006.

BP Chief Executive Bob Dudley, on his first visit after the government approved his firm’s plans to invest US $7.2 billion in taking stake in 23 oil and gas blocks of Reliance including KG-D6, said drilling more wells will not solve the problem. “You think of reservoir out there that is producing today is like a coke can. People are advocating that we put more straws in it. But actually what is around it are a few more coke cans. What we need to do now is develop those satellite fields,” he said.
RIL has so far has drilled 20 wells on D1 and D3 field but is producing 36.5 mmscmd of gas from 16 of them. Two wells have been shut because of high water ingress and a similar number of wells drilled recently have so far not connected to the production system.

DGH and the Oil Ministry feel that since Reliance has not kept its commitment made in the 2006 development plan, its right to recover cost should be reduced in proportion to the deficit in gas production. RIL has so far spent US $5.694 billion on the two fields and has recovered US $5.258 billion from the sale of gas produced. However, the ministry wants US $1.85 billion of the cost to be reversed.

Dudley said there are more fields around the currently producing D1 and D3 fields which need to be quickly brought to production. “What we need to do now is develop those satellite fields… We are hopeful that the government will approve development of satellites and that is how you can bring gas production back up,” he said adding production can be raised by 2014.

RIL has submitted a plan to invest over US $1.5 billion in developing four satellite fields around D1 and D3 to produce up to 10 mmscmd of gas by 2016.
Agencies

Accompanied by Reliance CMD Mukesh Ambani, he is scheduled to meet Oil Minister S Jaipal Reddy in the forenoon on Wednesday and several others before ending the day with a dinner hosted by British High Commission here.

Dudley and Ambani are likely to call on Finance Minister Pranab Mukherjee, Commerce Minister Anand Sharma and former Oil Minister Murli Deora among others.

The next day, Dudley flies to Krishna Godavari basin, home to Reliance’s crownjewel KG-D6 gas fields which have been at the centre of BP’s US $7.2 billion investment in buying 30 per cent stake in 23 oil and gas properties held by the Mukesh Ambani firm. Ambani is likely to host a dinner for Dudley on Thursday evening at his residence in Mumbai.

Sources said Dudley’s visit is more of a thanks giving on conclusion of the US $7.2 billion deal and a possible kick-off for a partnership with Reliance. Though the government had after nearly six months given its go ahead to the deal last month, BP has not yet formally been inducted as amendments to the Production Sharing Contract (PSC) are yet to be approved and signed by the upstream oil regulator DGH.

The Cabinet Committee on Economic Affairs (CCEA) had on July 22 cleared the sale of stake by RIL to BP in 21 blocks, including the showpiece eastern offshore KG-D6 gas producing area and discovery area NEC-25. However, it held back the same for two inconsequential blocks — one a deep sea area off the Orissa coast and the other an onland block in Assam — over technical issues.

The formal letter conveying the approval was however sent only in August. The deal, which might increase in value to US $20 billion on the basis of future performance payments and investment, will give Reliance access to BP’s expertise in deepwater drilling and accelerate development and production from its fields, particularly the under-performing KG-D6 block in the eastern offshore.

For BP, which has been struggling to recover from the disastrous Gulf of Mexico oil spill disaster last year, the transaction is a chance to enter a market where energy demand is growing at 5-8 per cent.
Agencies

The ministry and its technical arm, the DGH, are upset with RIL because production from the Dhirubhai-1 and 3 (D1 and D3) gas fields in the prolific KG-D6 block has fallen from 61 million cubic metres per day in March, 2010, to about 37 mmcmd, instead of rising to 61.88 mmcmd, as projected by the company when it got its US $8.8 billion capital expenditure plan for development of the field approved in 2006.

The ministry has attributed the fall in output to non-fulfillment of RIL’s commitment to drill 22 wells in the field. RIL has so far spent US $5.694 billion on the two fields and has recovered US $5.258 billion from the sale of gas produced. However, the ministry wants to limit cost recovery in the block in proportion to the slippage in output vis-a-vis the stipulated timeline, reducing RIL’s entitlement to US $3.405 billion.

The firm however feels such a move would be ultra vires, or beyond the ministry’s powers, as the Production Sharing Contract (PSC) does not have any such provision and the US $1.85 billion already recovered by RIL cannot be reversed.

“If the PSC were indeed to be re-written to link cost recovery to levels of production, it would also have to include provisions for allowing the contractor (RIL) to recover costs in excess of his investment in case he were to achieve a rate of production higher than that estimated at the time of capex approval,” RIL Senior Vice-President (Commercial) B Ganguly wrote to the ministry on September 16.

RIL said production below the original estimates meant the company loses its right to recover its investment within the originally estimated timeframe, causing huge losses in terms of sunk capital. Besides, RIL has already suffered huge erosion of market cap due to news of the fall in production.

RIL said as per the PSC, all costs and production numbers provided in the field development plan (like the one approved for KG-D6 in 2006) are only estimates based on the understanding of the reservoir and the market prices at any given point of time and “such estimates cannot be construed as constituting a commitment under the PSC.”

KG-D6 wells did not perform as per the FDP, as a severe drop in reservoir pressure and acute water ingress has already forced closure of two out of the 18 well drilled so far.

The Oil Ministry’s views have been backed by Solicitor General of India that said RIL should not be allowed to recover the cost of facilities that remain underutilised due to lower than anticipated output at its KG-D6 gas field.
Agencies

The Directorate General of Hydrocarbons (DGH) wants the government to also get a share of the profits from the US $0.135 per million British thermal units (mmBtu) marketing margin charged by Reliance from KG-D6 consumers, sources privy to the development said.

It wants the marketing margin to be added to the gas sale price of US $4.20 per mmBtu and indicated that profit-sharing between the contractor and the government should happen at US $4.335 per mmBtu. At present, RIL and the government split profits at the gas sales price of US $4.20 per mmBtu after deducting the project cost.

Sources said the DGH’s demand may open a Pandora’s Box, as even public sector firms like GAIL charge a marketing margin for the effort and risk they take in selling the hydrocarbon. GAIL charges up to US $0.18 per mmBtu as a marketing margin and none of it is shared with the government.

The DGH demand also runs contrary to the stance the Oil Ministry took on the issue in Parliament last year. The then-Oil Minister Murli Deora had on February 24, 2010, told the Rajya Sabha that oil and natural gas producers, including Reliance, need not share the marketing margin they charge from their clients with the government.

Deora had said the marketing margin of USD 0.135 per mmBtu for KG-D6 gas was a bilateral issue between the seller (Reliance) and the buyer. The government has approved the price for gas sales at the delivery point of the KG-D6 field as per the provisions of the Production Sharing Contract (PSC) inked with RIL, he said.

“The said price (US $4.2 mmBtu for five years) does not include any charge beyond the PSC delivery point. The marketing margin (levied by Reliance) is beyond the delivery point and arises as a result of the gas sale and purchase agreement signed between the seller and the buyer,” Deora had said.

The PSC provides for sharing of revenues from the sale of gas between the government and the contractor at the said price at the delivery point. It does not envisage sharing of revenues earned by the contractor from marketing margins with the government, he had further stated.

Sources said the marketing margin was in lieu of the risks and costs incurred by the contractor on marketing the gas. The US $0.135 per mmBtu marketing margin over-and-above the gas sale price was to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on the quality and quantity of gas, or the terms of the GSPA.

Furthermore, the marketing margin is charged by Reliance on account of its extensive efforts to identify customers, execute and manage gas sales and purchase agreements (GSPAs), besides gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, sources said.

The marketing margin was opposed by the Anil Ambani Group, but after the Oil Ministry clarification, it was deemed settled.

Other gas marketers like state-run GAIL India also charge a marketing margin. GAIL charges a US $0.18 per mmBtu margin on the sale of regasified-LNG and about US $0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravva.
Agencies

In comparison, the market value of Coal India, which had dethroned RIL to emerge as the country’s most-valued firm last week, stood at Rs 244,190 crore at the same time. Another state-run company, ONGC, was close behind at third position, with a market value of Rs 243,831 crore.

Shares of all three companies was trading in the red today, but the losses were sharper for CIL. While RIL was down 0.26 per cent at Rs 754.30, ONGC was down 0.62 per cent at Rs 285 and CIL was 2.2 per cent in the red at Rs 386.60.

After reigning as the country’s most-valued firm for more than four years, RIL slipped to second position behind CIL last week. Days later, RIL had briefly slipped to the third position after CIL and ONGC on August 19, but managed to regain the second slot by the time the market closed.

Nevertheless, RIL was back on top this morning and marketmen will be keenly watching the three stocks to ascertain whether the market valuation charts undergo further changes.

Interestingly, RIL had toppled state-run ONGC over four years ago to become the country’s most-valued firm, but slipped below the two public sector firms in terms of market valuation in intra-day trade last Friday. A company’s market valuation, or market capitalisation, is determined by multiplying its share price by the total number of shares.

CIL and ONGC had been closing the gap on RIL in terms of market valuation for the past few weeks, as RIL’s stock has been under selling pressure and the two PSUs have been mostly performing well even in a weak market.
Agencies

“RIL has been informed that the Cabinet Committee of Economic Affairs has given its approval to the proposal of RIL to assign 30 per cent of its interest to BP Exploration (Alpha) in 21 out of 23 Blocks,” the company said in a statement.

“RIL will pursue with the Government to resolve the issues, if any, concerning the balance two blocks,” it added. Oil Minister S Jaipal Reddy had announcing the CCEA decision on July 22 stated that “for technical reasons, we did not recommend [sale of interest in] two other blocks”.

Approval for stake transfer in the inconsequential blocks where no oil and gas discovery has yet taken place, would be done by the Oil Ministry once issues like the status of exploration are sorted out, he had stated. Sources said oil regulator DGH and RIL were in disagreement over the status of exploration in deepwater block NEC-DWN-2002/1 in Bay of Bengal and Assam onland block AS-ONN-2000/1.

In NEC-DWN-2002/1, RIL had taken an extension of Phase-I of its exploration campaign. In the meanwhile, the government recently announced rig moratorium, allowing firms more time to fulfil their drilling commitments which they had previously not met due to global shortage of drilling rigs.

Since NEC-DWN-2002/1 was covered by rig moratorium, RIL sought to withdraw the exploration extension it had availed as per the exploration extension policy of the government but DGH and Oil Ministry said no to it, sources said, adding, it is not clear if the block was in Phase-I or Phase-II of exploration. In Assam block AS-ONN-2000/1, there is a disagreement over whether RIL had completed its Phase-I work programme and entered Phase-II.

While RIL had drilled a well on NEC-DWN-2002/1, it was planning to do so on Assam block shortly. The well on NEC-DWN-2002/1 was dry, that is, it did not lead to any oil or gas find, they added.
Agencies

Its net profit for the period April-June last year was Rs 4,851 crore, the company said in a filing to the Bombay Stock Exchange.The company reported a 39.14% rise in its net sales for the quarter under review at Rs 81,018 crore as against Rs 58,228 crore in the year-ago period.

Commenting on the results, the company’s Chairman and Managing Director Mukesh Ambani, said: “Reliance Industries continues to deliver strong financial and operating results. The growth in earnings was driven by strong refining margins and sustained performance in the petrochemicals business. Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world. We remain committed towards investing in India and have commenced the investment program in the petrochemical business.”

The government on Friday gave an unconditional nod to the country’s biggest private sector company, to sell 30% interest in 21 blocks to British Petroleum. The government, however, withheld permission for another two blocks.

The two companies had on February 21 announced that BP would pay $7.2 billion to RIL for the deal. The deal is one of the major foreign direct investment (FDI) in the history of India.

Shares of the company closed at Rs 882, up 1% from previous close on the BSE.
Business Standard

Sources privy to the development said the ministry had on June 22 written to the CAG saying the audit observations were never discussed with either Reliance or Cairn and they did not get an opportunity to respond to the strictures. The CAG on the same day replied back saying its “audit mandate, scope and coverage” did not provide for seeking a response on its draft observations and the government can raise audit objections after it has finalised its report and it is tabled in Parliament, they said.

The CAG, during the audit of Reliance’s eastern offshore KG-D6 gas fields and Cairn’s Rajasthan oilfields last year, never gave the private operators a chance to explain the complex nature of their business, which the nation’s top auditor had hitherto never scrutinised. Instead, the CAG wrote audit memos and requisitioned accounts, with which the private operator fully complied.

Sources said the CAG had a 90-minute session, lunch included, with the operators in the first week of June this year with no pre-set agenda and no audit observations were discussed. Within days of this meeting, the auditor sent its draft report without including any inputs from the private firms, to the Oil Ministry for comments.

The CAG, in its June 8 draft report, stated that the Oil Ministry and its technical arm, the Directorate General of Hydrocarbons (DGH), favoured Reliance and Cairn by allowing them to retain their entire exploration acreage, turning a blind eye to increases in capital expenditure and giving additional area in violation of the Production Sharing Contracts (PSCs).

“The contractors have seen and replied to the audit requisitions and memos only. They have not been given the draft report, which has the response to audit queries and observations of CAG,” the Oil Ministry wrote to the CAG on June 22.

“In the interactive meeting (held in first week of June), one of the operators gave a presentation on how the project was executed and no audit observation were discussed. In the other meeting, only one observation was discussed with the operator,” it wrote.

“The operators were not given any draft report before this meeting so that they could have come prepared with some reply,” it added.
Agencies