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Fall in gas production lands fine of US$1.25 billion for India's Reliance

MUMBAI -- India's government has asked energy giant Reliance Industries to pay a US$1.25 billion penalty for a fall in gas production from its main oil fields, a company executive said on Friday.

The government and investors have been concerned for months over Reliance's declining gas output from its main D6 fields in the Krishna-Godavari basin off the coast of eastern India.

“We have got the letter and will respond to it,” the company executive told AFP, declining to be named.

The oil ministry's notice to Reliance says it “failed to fulfill its obligations ... and willfully caused breaches, which led to immense loss and prejudice to the government and people of India,” Indian media reported.

The reports said Reliance would not be permitted to recover the cost of its investments — US$457 million in 2010-11 and US$778 million in 2011-12 — from the sale of gas.

Under India's exploration policy, the government allows firms to first recover their exploration and production costs from oil and gas revenues, and later share profits with the government.

Reliance's spokesman declined to comment further as he said that the “matter was sub-judice.”

Reliance, controlled by India's wealthiest man Mukesh Ambani, late last year started arbitration proceedings against the government to help recover its costs, but the ministry has so far refused to take part in the arbitration.

Crude oil production from Reliance's main oil field KG-D6 slid 37.9 percent year-on-year to 4.94 million barrels, said Reliance, when it reported a 20 percent fall in quarterly profit last month.

Natural gas production fell 23.5 percent to 551.31 billion cubic feet, over levels a year earlier.

“Production from the KG-D6 block has been adversely impacted due to unforeseen reservoir complexities,” the company said at the time.

Last year, British energy giant BP paid US$7.2 billion to acquire a 30-percent stake in 21 of Reliance's oil and gas fields.

Reliance hopes that BP's deepwater drilling expertise will give the Indian giant the skills to develop hard-to-exploit reserves and find more oil.

Reliance operates the world's largest oil processing complex in Jamnagar, where two adjacent refineries have a combined capacity to process over 1.2 million barrels of oil a day.

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