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
2014 March 2015. Copies of the tender invitation letters were sent to
MOPNG on 11
th
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 11
th
June 2014. IOC and Essar Oil Limited sent their
regrets, copies which were sent to MOPNG on 11
th
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
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 was
sent to MOPNG on 11
th
June 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 and
LSWR 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 Differential 4 USD/bbl.
CPCLs formal proposal dated 10.06.14 was forwarded to MOPNG on
11
th
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 for
validly 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.