After running into issues over D6 output, the petromin wants termination of contracts in case of major deviations.
Once bitten twice shy. The Ministry of Petroleum and Natural Gas (MoPNG) is leaving nothing to chance as it prepares for the Xth round of auctioning of hydrocarbon blocks under the New Exploration Licencing policy (Nelp).
After it ran into issues with Reliance Industries Ltd (RIL) over the missed target of production from the KG D6 block, the department does not want to draft a weak policy for future round of bidding.
In a Cabinet note, the ministry has said, “Minor deviation from the contract will invite financial penalty which will be graded item-wise, while major deviations may result in termination of contract. The nature and quantum of penalty will be defined in the model revenue sharing contract.”
A petroleum ministry official said, “The model revenue sharing contract (MRSC) will have clear production targets for the operator based on the technical data and the field development plan submitted by the operator. If the company fails to meet the production targets as per the projections, the government will have the powers to take cancel the contract with the contractor.”
The MCSC contract is being prepared for the 46 hydrocarbon blocks the government plans to auction later this year.
The Directorate General of Hydrocarbons (DGH) and RIL had agreed on the production target of 80 million standard cubic metre per day (mmscmd) by April 2012. However, the gas production had started to decline with the operator currently producing only 13-14 mmscmd of gas.
“The petroleum ministry had faced a lot of criticism for not being able to penalise RIL for not meeting its production targets. However, the production sharing contract had not envisaged this kind of situation and that is why the government is in arbitration with the company,” said the official.
While the government has slapped a penalty of $1.8 billion on RIL for failing to meet the production target, the company is not liable to pay it until it is proved in the arbitration that the fall in production was due to the company’s fault.
The DGH had appointed an expert committee headed by P Gopalkrishnan to look into the reasons for the fall in the production from D6 basin. The committee had said that the fall in production happened because the operator did not drill the wells as per the field development plan by the end of the first year, thereby affecting a rate decline.
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