Reliance-BP-Niko's KG-D6 cost disallowed by the oil ministry
What's the story
According to reports, the oil ministry has now imposed a penalty of $264 million on the consortium of Reliance Industries Ltd (RIL), BP Plc. and Niko Resources Ltd.
This punitive action was taken because the consortium couldn't achieve the preset target of natural gas production from the D6 block in the Krishna-Godavari (KG) basin during 2015-16.
Here's more about it.
KG-D6
What's it all about?
Dhirubhai-1 and 3 gas fields, in the eastern offshore KG-D6 block, were estimated to produce 80 million metric standard cubic meters (mmscmd) on a daily basis.
The consortium failed to come even close to this target.
In 2011-12 the production stood at 35.33 mmscmd. After that, it came down to 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. Currently, it's below 4 mmscmd.
Contract
What was the deal?
As per the Production Sharing Contract made between the consortium and the government, RIL and its partners were allowed to deduct their capital and operating expenses from the sale of gas and then share the leftover profit with the government.
Now, the government is disallowing the firms from recovering their costs, as they have missed the target for six consecutive years.
Costs
What has been done so far?
Government's profit share will increase considerably with disallowing the deduction of costs. Moreover, it has also asked for an additional $175 million as its profit share.
Earlier it had disallowed $457 million of cost in 2010-11, $548 million in 2011-12, $792 million in 2012-13, $579 million in 2013-14 and $380 million in 2014-15.