RIL Statement on Sale of Crude Oil from KG-D6

8/11/2019 RIL Statement on Sale of Crude Oil from KG-D6

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RIL Statement on Sale of Crude Oil from KG-D6

1.

KGD6 Crude Oil was being sold to CPCL and HPCL on Spot contract basis

since November 2008 and CPCL has been the sole buyer since April

2012.

2.

Fresh tenders, with payment security as a condition to avoid any

forced withholding outside any judicial process, were invited on

10.04.14 from all oil refining companies in India (viz. IOC, CPCL, HPCL,

BPCL, MRPL, Essar Oil Ltd and RIL Refinery Division) for sale of spot

cargoes of KGD6 Crude Oil ex-FPSO Dhirubhai-1 located at D-26 (MA) oil

and gas Field of Block KG-DWN-98/3 (KGD6) during the period April

2014March 2015. Copies of the tender invitation letters were sent to

MOPNG on 11th

June 2014.

3. On the request of CPCL, the last date of submission of bids was

extended from 25.04.14 till 07.05.14.

4.

Against the tender, we received only two bids on 07.05.14 i.e., from

CPCL and RIL Jamnagar Refinery. Copies of the bids received were sent

to MOPNG on 11th

June 2014. IOC and Essar Oil Limited sent their

regrets, copies which were sent to MOPNG on 11th

June 2014. HPCL,

BPCL and MRPL did not respond.

5.

The bidders were asked to quote the Crude Oil price as per the formula

given in the Tender Invitation document. This formula, inter-alia,

provided D as a biddable element.

6. While both CPCL and RIL Jamnagar Refinery quoted a D of Zero

US$/bbl, CPCLs bid was conditional. CPCL accepted the condition of

providing Letter of Credit (LC), provided LC charges are borne by the


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Seller. CPCL also stated in their bid that the Pricing Mechanism must be

reopened and that the Sellers have to justify the component C, which

is a composite premium of 2% over Bonny Light, reflecting quality

differential, based on the present quality of KGD6 Crude Oil.

7.

Although our tender document clearly stated that In order to facilitate

comparison between bids on the same terms and conditions, sellers

will not be able to accept conditional bids, in view of our long business

relations with CPCL, we accepted their suggestion to bear the LC charges

and gave CPCL an opportunity to submit a revised bid, with the

condition that there would be no reopening of the pricing formula which

was given in the tender. Copy of our letter dated 19.05.14 to CPCL wassent to MOPNG on 11

thJune 2014

8.

CPCL submitted a revised bid on 26.05.14(Copy was sent to MOPNG on

11th June 2014). In its revised bid, CPCL reiterated its earlier position

that the pricing mechanism needs to be discussed and modified as the

API of KGD6 Crude Oil has increased from 42.72 to 55.92 degree, which

has resulted in the increase of Naphtha yield and decrease of HSD andLSWR yields. CPCL also mentioned that component D, which CPCL had

quoted as Zero, had to be discussed and reviewed in view of the above

mentioned API variation. CPCL even mentioned that KGD6 Crude, at its

present quality, appears to be close to D.F. Condensate in quality.

9. In response to CPCLs revised bid, a meeting was held with them on

06.06.14 to discuss their revised proposal. During the discussions, CPCL

stated that it will not be possible for them to continue to link the price

of KGD6 crude to Bonny Light and sought to link it to DF Condensate

through a GPW Differential plus a Discount, for under recoveries due to

high naphtha content. CPCL quoted this discount at USD 4 /bbl. The

formula proposed by CPCL: KGD6 = DFC + GPW Differential4 USD/bbl.


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CPCLs formal proposal dated 10.06.14 was forwarded to MOPNG on

11th

June 2014.

10.

The pricing formula proposed by CPCL works out to about USD 4 5

per barrel (basis Apr-May 2014 prices) less than the pricing formula

quoted by RIL Jamnagar, which is as per the tender condition, i.e.:

KGD6 = Bonny Light + GPW Differential + 2% Composite Premium over

Bonny Light + Zero

11.

Since even after giving CPCL an opportunity to revise their price bid, RIL

Jamnagar Refinerys offer is highest, accordingly we have no option but

to accept RIL Jamnagars bid for lifting of KGD6 Crude Oil during FY

2013-14 on Spot contract basis.

12.

There is no restriction in the PSC that the oil and gas cannot be sold to

related party as long as an arms-length process is followed.

13.

PSC obliges Contractor to sell at the market determined price to the

benefit of all Parties. The sell at higher price to RIL JN refinery would

entail additional profit petroleum and royalty. MOPNG has never

questioned that the process followed is in violation of PSC.

14. We have earlier sold the crude oil and now selling condensate to PSUs

under similar process followed wherein RIL JN was not the highest

bidder. No question was raised as to the same bidding process.

15.

Having followed a robust transparent bidding process, the allegation

that RIL has tailor-made the formula is only an after-thought.

We understand from media that MOPNG is seeking withholding of payment forvalidly sold oil and gas to customers in order to bypass the dispute resolution

process. Such action, if correct, is not within the provision of law.

Documents

RIL Statement on Sale of Crude Oil from KG-D6