RIL seeks arbitration over big KG-D6 fine

Reliance Industries Ltd., Mumbai, has sought arbitration in its dispute with the Indian government over oil and gas fields in the deepwater KG-D6 block offshore eastern India after the government imposed a fine of $1.005 billion (OGJ Online, Aug. 13, 2012).

The Ministry of Petroleum and Natural Gas for months has pressured RIL to increase drilling in response to shortfalls in gas production against projections in development approvals. RIL blames poor reservoir performance.

In a statement, the government said average production from the block in the current fiscal year has been 29.81 MMscfd of gas, compared with 86.73 MMscfd targeted in development plans approved for D1, D3, and MA fields.

It said six of 18 producer wells in D1 and D3 have ceased production because of water loading and sand ingress. In MA field, it said, two oil and gas wells out of six have ceased flowing because of water ingress.

The government blames “nondrilling of the required number of gas producer wells in D1 and D3 fields” set by an addition to an initial development plan.

It said RIL has responded that performance of existing wells in the main channel area and reservoir characteristics of overbank areas indicate that additional wells in D1 and D3 fields might not improve production or recovery rates.

RIL has told the government that reservoir behavior and characteristics vary from predictions and that pressure declines are several times those originally expected.

The company said early watering of some wells was unexpected, although overall water production has been low. And it has told the government geologic complexity hampers its ability to set further drilling locations.

M. Veerappa Moily, who became minister of petroleum and natural gas in October, has rejected RIL’s arguments. He imposed the fine in the form of disallowance of the cost of production facilities.

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