India Prevents Reliance Industries From Recovering Billions Spent on Gas Exploration
India's Reliance Industries' KG-D6's floating production storage and offloading (FPSO) vessel is seen off the Bay of Bengal in this undated handout photograph.Reuters

New Delhi has prohibited energy major Reliance Industries (RIL) from recovering $2.376bn invested to develop offshore gas fields on India's east coast as output has fallen considerably below the promised volumes.

Oil Minister Dharmendra Pradhan, in a written reply to Indian lawmakers on 14 July, said Reliance, the operator of the deepwater KG-D6 gas block, has been served notices for disallowance of cost recovery.

British energy giant BP and Canada's Niko Resources hold stakes in the troubled KG-D6 gas block.

Owing to the disallowance of cost recovery to Reliance and its partners, New Delhi has raised a further claim of $195m (£114m, €143m) as profit petroleum for a period up to 31 March, 2014, Pradhan added.

India permits companies to first recover their costs from oil and gas revenue, and share profits with the government thereafter.

Reliance erected facilities to produce 80 million cubic metres a day (mmscmd), but actual gas production has been much lower, the oil minister said.

Production from the D1 and D3 gas discoveries in the KG-D6 block, during the April-June quarter of 2014, averaged just 8.05 mmscmd. The two gas fields were to produce at a peak rate of 80 mmscmd in 2012-13.

Reliance, also the operator of the world's biggest oil refining complex, has said that unexpected geological complexities led to the fall in output. India's oil ministry, however, believes the firm failed to drill enough wells.

RIL operates the KG-D6 gas block with a 60% stake. The UK's BP owns 30% in the block and Niko the rest.