1. Gas row: Reliance Industries faces $1 bn penalty in dispute with ONGC

Gas row: Reliance Industries faces $1 bn penalty in dispute with ONGC

The Directorate General of Hydrocarbons is understood to have computed the penalty payable by Reliance Industries (RIL) for exploiting natural gas that migrated to its KG-D6 block from ONGC’s adjacent asset at upwards of $1 billion.

By: | New Delhi | Published: November 1, 2016 6:17 AM
Unconfirmed reports suggest that natural gas worth R11,000 crore migrated from the PSU explorer’s block. However, FE couldn’t verify the authenticity of this figure. (Reuters) Unconfirmed reports suggest that natural gas worth R11,000 crore migrated from the PSU explorer’s block. However, FE couldn’t verify the authenticity of this figure. (Reuters)

The Directorate General of Hydrocarbons is understood to have computed the penalty payable by Reliance Industries (RIL) for exploiting natural gas that migrated to its KG-D6 block from ONGC’s adjacent asset at upwards of $1 billion. The figure has been arrived at after taking into account capital and operational expenditures incurred by RIL in taking out the migrated gas, sources with knowledge of the matter told FE. With the DGH giving the report to the oil ministry last week, the latter is likely to issue a notice in this regard to the Mukesh Ambani-led firm later this week, the sources added.

A November 2015 study by US-based consultant DeGolyer and MacNaughton noted that up to 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to the adjoining KG-D6 block of RIL in the Bay of Bengal between April 1, 2009, and March 31, 2015. Later, former Delhi HC chief justice AP Shah in a report on the issue said the quantification of RIL’s unjust enrichment can either be based on the monetary value of the migrated gas produced, and to be produced, by RIL or it can be the profit it earned, after taking into account its costs and sales figures. But Shah was clear ONGC has no locus standi to make tortuous claim against RIL.

When asked if ONGC would claim compensation, chairman and MD DK Sarraf said getting a share of compensation is a “secondary issue”. According to him, ONGC’s claim that its gas migrated to the RIL asset, which was the primary bone of contention, is now established.

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Unconfirmed reports suggest that natural gas worth R11,000 crore migrated from the PSU explorer’s block. However, FE couldn’t verify the authenticity of this figure.

ONGC had argued that the quantification of unfair enrichment has to be based on the monetary value of the migrated gas produced by RIL. Conversely, RIL argued that it is entitled to recover the development, drilling and facilities costs (capital expenditure) and operating costs for the migrated gas and to take into account its sales figures.

In July 2013, ONGC for the first time wrote to the DGH stating that there was evidence of lateral continuity of gas pools of the ONGC blocks with the KG-DWN-98/3 block, operated by RIL. The private explorer initially had denied ONGC’s claim of gas migration.

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