Gas migration case: RIL initiates arbitration against govt

Mukesh Ambani-led Reliance Industries Ltd (RIL) and its partners, BP and Niko Resources, have initiated an arbitration process against the Centre's notice imposing a penalty of $1.55 billion on these companies for allegedly using migrated gas from state-run Oil and Natural Gas Corporation's (ONGC's) asset in KG-D6.

It was on November 3 that the government had slapped the penalty. Following this, RIL had come out with a statement that the contractor's liability has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary. "RIL remains convinced of being able to fully justify and vindicate its position that the government’s claim is not sustainable," it said. The company is already locked in arbitration with the government on various other issues related to KG-D6.

The Dharmendra Pradhan-led Ministry of Petroleum and Natural Gas came out with the penalty notice after a report by the one-man panel of justice A P Shah suggested the same and said that the company got 'unjust' benefit from the migration of gas. The Shah panel also agreed to the findings of the US-based consultant DeGolyer and MacNaughton, which submitted its report in November last year, and which stated that about 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to RIL's adjoining KG-D6 block from April 2009 to March 2015. The penalty notice was issued based on a gas price of $4.2 per million metric British thermal unit.

In the block KG-DWN-98/3 in Krishna Godawari basin, RIL had made its discoveries in 2002 and BP and Niko have 30 per cent and 10 per cent stakes in the assets, respectively. RIL started commercial production from the block on April 1, 2009. On the other hand, ONGC's KG-DWN-98/2 is adjoining the RIL area.

In July 2013, ONGC wrote to the Directorate General of Hydrocarbons stating that there was evidence of lateral continuity of gas pools of the ONGC blocks with that of RIL. Consequently, ONGC sought data on RIL’s block. RIL and ONGC held a series of discussions and it was agreed that an independent consultant would be jointly appointed to carry out a study but before a consultant was identified, ONGC filed a writ petition in the Delhi High Court on May 15, 2014, against the Government of India, DGH and RIL. It was following the court decision that the government had set up the Shah panel.