India disallows $1.2 bln Reliance cost recovery - reports

Reliance Industries KG-D6's floating production storage and offloading (FPSO) vessel is seen off the Bay of Bengal in this undated handout photo.

MUMBAI (Reuters) - The petroleum ministry has struck down Reliance Industries Ltd's (RELI.NS) plan to recover $1.2 billion in costs before the energy major starts sharing profits with the government from its gas field off the country's east coast, newspapers reported on Friday.

The ministry has disallowed the costs recovery from the KG D6 gas field because of Reliance's failure to meet drilling commitments and blamed the company for violating production sharing contract obligations, the Business Standard said, citing a notice sent to the company.

Calls to a Reliance spokesman was not immediately answered.

Under India's exploration policy, the government allows companies to first recover their cost from oil and gas revenue, and subsequently share profits with the government.

Reliance's growth outlook has been marred by falling gas output from its huge gas fields, with production less than half of what was originally estimated.

The CAG last year criticised both Reliance and the government over development of the KG gas field, and the company's shares slumped by a third in 2011.

The company has earlier said unexpected geology has caused the decline in output and drilling more wells would not help, but this has been rejected by the oil ministry.

In November, Reliance had sent an arbitration notice to the government over cost recovery, but the ministry has so far refused to join arbitration.

(Reporting by Prashant Mehra; Editing by Ranjit Gangadharan)