The Oil Ministry has sanctioned taking "scrupulous" action against Reliance Industries for natural gas output from its KG-D6 fields falling below the target.
Also, gas out from ONGC's western offshore field being way off the target led to the nation's first trunk pipeline from Hazira to Jagdishpur (HBJ) running half empty for years. ONGC's Neelam field also produced only one-third of the targeted oil.
RIL had in September warned Oil Ministry of legal action saying the attempt to limit cost-recovery is illegal and ultra vires.
"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 had written to the ministry on September 16.
Sources said the oil ministry is basing its action on Solicitor General of India's opinion that 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.
SGI Rohinton F Nariman had in August opined that "the cost/expenditure incurred in constructing production/processing facilities and pipelines that are currently underutilised/have excess capacity cannot be recovered".
"There is no provision under the Production Sharing Contract (PSC) that can limit cost-recovery to either production levels achieved by a contractor or to the extent that facilities are utilised under a development plan at any given point of time," RIL had written to Oil Ministry.
The Initial Field Development Plan (FDP) for the D1 and D3 gas fields in the KG-DWN-98/3 block (KG-D6) envisaged a capex of USD 2.47 billion at a peak production rate of 40 mmcmd from 14 wells.
Subsequently, RIL submitted an addendum saying the size of the gas reserves was twice the estimate of 5.32 tcf in the initial plan, at 11.3 trillion cubic feet. It proposed a USD 8.835 billion capex over two phases and envisaged a peak output of 80 mmcmd from 31 producing wells by April, 2012.
Commercial gas production from the D1&D3 fields commenced from April 1, 2009. In December, 2009, RIL tested its field production facilities at their full rated capacity of 80 mmcmd, during which an average gas rate of 77-80 mmcmd was maintained for a brief period of three days. The output included nearly 8 mmscmd from MA oilfield in the same block.
Sources said RIL has till now made USD 5.693 billion expenditure on D1&D3 development out of which about USD 4.365 billion has been on production facilities only. It has already recovered USD 5.258 billion up to March 31, 2011.