HC seeks RIL?s reply on ONGC charge of ?clever? gas extraction

The Delhi High Court on Thursday sought a reply from Reliance Industries (RIL) on a plea filed by state-owned oil and gas major ONGC contending that RIL had ?cleverly and craftily exploited? gas from the PSU’s blocks in the Krishna-Godavari (KG) basin totalling about 18 billion cubic metres (bcm) between 2009 and September 2013.

The PSU sought compensation for the loss of ?several thousands of crores of rupees?due to the alleged unauthorised tapping of its gas by the private firm.

At $4.2/mmBtu, RIL’s revenue from alleged sales of ONGC’s 18 bcm gas could be pegged at around $2.7 billion although the PSU did not mention any specific figure in its petition.

ONGC’s block KG-DWN 98/2, which is yet to start production, lies next to RIL’s KG-DWN-98/3, commonly known as KG-D6. The Mukesh Ambani-controlled firm?s block has been in commercial production since 2009. The output from KG-D6 is hovering around 13 mmscmd after it touched a peak of 67-68 mmscmd in 2010.

The High Court has also sought replies on ONGC’s plea from the ministry of petroleum and natural gas and also the upstream regulator, the Directorate General of Hydrocarbon (DGH), who, ONGC said, failed to take precautionary steps to prevent the situation.

For now, the matter has been listed for further hearing on May 29.

The PSU has argued that its interest can be protected by an order directing immediate accounting and balancing of exploitation done so far by RIL and by directing it to compensate for the gas. The PSU has demanded that a court-monitored independent agency be set up for serving the two-fold 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).

Additionally, it has sought that the oil ministry and DGH be directed to make estimations of gas volumes exploited by RIL from the date it commenced actual commercial production. It also pleaded that a direction be issued to Reliance to submit full accounts of the gas it has produced and at the rates at which it sold it, from the date of production to this day.

Further, ONGC has called upon the court to direct RIL to submit an undertaking stating that it shall pay the PSU the amount due in respect of the allegedly exploited gas reserves, if it were to be held liable.

More than a year ago, ONGC first raised the issue that its block is connected underground to RIL’s block. Both the companies held several rounds of talks and shared technical data to examine if ONGC’s claim is true. The government-owned company says it is confident that RIL has taken out gas from its area and, therefore, wanted to appoint an international independent consultant to review the issue.

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.

RIL hasn’t made any public statement on the issue so far.

The block in possession of ONGC is contiguous and adjoining to the one being explored and exploited by RIL. Both the blocks are off the coast of Andhra Pradesh in the Bay of Bengal and their total initial area is about 14,939 sq km. RIL has given back nearly 85% of the block area to government.

ONGC is yet to drill more wells to commence production from the northern area of the block, which is expected by 2017. It has submitted the declaration of commerciality to DGH and expects to drill about 2-3 tcf of gas from the area. In case the connectivity between the reservoirs is established, the reserves would have to be shared and pro-rata allocation of volumes may take place.

?RIL had an obligation and duty to act in accordance with the provisions of the Act and the PSC and ought not to have either explored much less exploit the gas reserves although in its own block at such a tantalisingly close distance of 50mts to 350 mts from the blocks of ONGC without even caring to inform the company its intent to do so and without taking it into confidence and offering joint development in the circumstances,? the PSU has stated in its plea.

ONGC has also argued that the DGH has failed to take precautionary measures to prevent this situation, resulting in a loss of several thousands of crores of rupees to it and in not having followed the mechanism internationally accepted for “joint development”, which has been expressly provided in the Production Sharing Contract (PSC).