RIL and BP

Reliance Industries Ltd and its oil extract partner BP PLC of the UK and Canada’s Niko Resources got smacked by a penalty of Rs.1700 crore for producing less amount of natural gas than targeted from the eastern offshore KG-D6 fields in 2015-16.

The contract between Reliance and government was to extract the gas from the Oil fields and share the profit amount. But the renowned company failed to do so. The government has imposed the penalty for not recovering the exact amount of gas according to the target for six years. It began in 2010, and the amount counts to be 3.02 billion dollars an oil ministry official announced.

The Production Sharing Contract (PSC) allowed RIL and BP PLC to recover the investment amount from Petroleum and Natural Gas sold and then give the profit amount to the government.

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Gas production from Dhirubhai-1 and three natural gas fields in the eastern offshore KG-D6 block was expected to be 80 million standard cubic meters per day, but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The outcome graph dropped year by year.

The warning emails sent to RIL remained unanswered which forced the government to take such decision. The government had for 2010-11 disallowed $ 457 million of cost, $ 548 million for 2011-12, $ 792 million for 2012-13, $ 579 million for 2013-14 and $ 380 million for 2014-15.

This year it is Rs.1700 crores, and a senior official said that the disallowance could be calculated only after completion of the next year.

RIL stated “every year, based on its interpretations of the PSC and assumptions (with which the contractor group does not agree), the ministry of Petroleum and Natural Gas revises the total cost it proposes to disallow and consequently aggregates the figure with figures of the previous years. It also demands additional profit petroleum as Government of India share”.

In the profit attained till date the government has already collected gross $ 81.7 million in the gas pool account by taking away any gas price higher than $ 4.2 per million British thermal unit during November 2014 to March 2016 period. RIL holds 60 per ce4nt of share, BP holds 30 per cent, and Niko holds remaining 10 per cent.