Solution to ONGCs suit against RIL could lie outside courts

Written by Siddhartha P Saikia | New Delhi | Updated: May 19 2014, 09:56am hrs
ONGCONGC and RIL have jointly signed minutes of a meeting to record such an understanding, said the Mukesh Ambani-controlled explorer.
ONGC last week took Reliance Industries to court for allegedly taking away gas from its blocks overlapping with the latters KG-D6 block, but globally there are enough precedents of such issues being settled amicably outside court rooms. The PSUs move, pertinently, comes close on the heels of the two parties agreeing to appoint a third-party consultant to assess the extent of overlap.

Hydrocarbon blocks being continuous underground are not rare in Indian sedimentary basins, nor are they globally, and the mostly widely used tool to resolve the disputes arising from such porous fields is what is called a unitisation agreement (UA) among the parties in a potential dispute. Not only within the confines of national boundaries, even cross-border reservoir connectivity is resolved through pre-emptive UAs between the companies involved in the latter case, also with joint ratification by the governments concerned.

Early this year, for instance, Brazils oil regulator ANP said that Royal Dutch Shell needs to work out a solution with the Brazilian government as it exceeded extraction at an oil reservoir and suggested that the MNC sign a UA with Brazils national oil company PPSA. Shell admitted to the reservoir exceeding the limit, while Brasilia said Shells BM-S-54 block encroached on areas yet to be auctioned.

Another recent example of a cooperative approach between the stakeholders to monetise such disputed hydrocarbon resources is the UK and Norway signing an agreement that each country would respect their boundaries in the North Sea, if oil and gas is found flowing across the dividing line.

There are several such cases in the oil-rich Gulf countries. According to industry watchers, an exploration company was producing oil from an Abu Dhabi offshore field known as Sassan, whose reservoir was spread across the international boundary between Abu Dhabi and Iran. Negotiations are on between the two nations.

In yet another such case, Qatar is reportedly developing the North Field that is expected to be connected to South Pars of Iran, across the border. If the reservoir is connected, as believed, North Field is reducing Irans hydrocarbon recovery. Since there is no unitisation agreement between the two countries, it is unclear whether Iran would raise the matter in international fora or negotiate with Qatar for a resolution.

Back home, in its plea before the Delhi High Court, ONGC alleged that RIL had exploited gas from the PSUs blocks in the KG Basin totalling about 18 billion cubic metres (bcm) between 2009 and September 2013.

At $4.2per million metric British thermal units, RILs revenue from alleged sales of ONGCs 18 bcm of gas could be pegged at around $2.7 billion, although the PSU did not quote any specific figure in its petition. ONGCs block KG-DWN 98/2, which is yet to start production, lies next to RILs KG-DWN-98/3, commonly known as KG-D6

This is not the first time ONGC has hit such a hurdle. It encountered a similar case of reservoir connectivity in the Olpad fields in Gujarat where it claimed connectivity existed with its fields and the Bheema fields of Niko Resources. The issue is yet to be resolved. On the other hand, there are earlier cases where Niko and Cairn amicably settled such as issue in the Cambay Basin.

These are not uncommon where reservoirs goes into two blocks because while demarcating blocks, one doesnt know where the reservoir is flowing. In such a situation, the companies settle the issue through a unitisation agreement, said said Dilip Khanna, partner (oil and gas practice) at EY.

ONGC wants a court-monitored independent agency be set up for serving the twofold purpose of establishing the continuity of reservoir across the two blocks and, secondly, for gas balancing in accordance with the rules and articles of the production-sharing contract (PSC).

In fact, ONGC and RIL held several rounds of talks and shared technical data to examine if ONGCs claim is true. As per ONGC, during these talks, the PSU and RIL agreed on appointing a third-party consultant to resolve the issue, but differences persisted on the volume of gas overlapped between the adjoining blocks of the two companies.

On the other hand, RIL said that the company has been constructively engaged with ONGC in sharing of data and finding a suitable resolution through the appointment of an independent third-party expert the most recent being as late as on May 9. ONGC and RIL have jointly signed minutes of a meeting to record such an understanding, said the Mukesh Ambani-controlled explorer.

Any inference prior to such assessment is mere speculation and commencement of legal proceedings at this juncture is unwarranted. Any claims of any impropriety on the part of RIL, if these have been made, are baseless and RIL will take appropriate steps to safeguards its position and rights, RIL has said.