Given AP Shah’s formidable reputation, he was expected to come up with a solution to the issue of gas migration from ONGC’s blocks in the KG Basin to those of Reliance Industries Limited (RIL), but what has emerged is a more complex set of problems—indeed, given important parts of the report are contradictory, it has probably muddied the waters as well. On the positive side, it exposes the lethargic functioning of India’s premier oil company ONGC which represents a significant opportunity cost—something prime minister Narendra Modi, a strong defender of PSUs, also needs to keep in mind. Calling out Reliance’s ‘theft’ of ONGC’s gas is easy, but none of this would have happened if ONGC had started working its blocks on time—had this happened, when RIL started drilling its gas, the pressure in ONGC’s wells would have fallen, making it clear there was a problem; instead, ONGC woke up at least 6-7 years too late.
That gas has migrated from ONGC’s blocks to RIL’s is now beyond doubt and the amount has been established by a reputed global consultant. What is important is whether RIL knew about it prior to ONGC’s complaint and how it is to be penalised for this. ONGC contends Reliance knew, based on a seismic study done in 2003 for its partner Niko which said the gas in ONGC’s blocks had been taken into account while calculating the ‘possible’ reserves of RIL’s blocks—‘possible’ reserves imply there is a 10% chance of them being there. RIL, for its part, talks of how ONGC also had its own seismic data for at least 10-15 years and, by that logic, should also have known their fields could possibly be connected. Based on the evidence presented, Shah says RIL prima facie had knowledge about the ‘connectivity and continuity of reservoirs’; it also talks of how ONGC had ‘some form of prior knowledge about possible continuity’. And then, it goes on to say it is ‘unable to draw final conclusions regarding RIL’s and ONGC’s prior knowledge, without any evidence being led before it’—it wants the government to probe the allegations of RIL/ONGC’s ‘prior knowledge’, though how is not clear.
The reason for the obvious contradictions is seismic data is never precise, if it was, there would be no need for exploration—indeed, even exploratory data from drilling/testing a few wells doesn’t give as much data as actual production does. Forget the gas-migration from ONGC’s blocks, RIL’s initial seismic data plus exploration wells of its own block made it estimate gas reserves at 5 tcf in 2004, drilling of more wells made it double the estimated reserves a year later, while the actual production process revealed there was only 2.3 tcf of gas several years later. It is only because drilling wells gives more data than seismics that ONGC drilled in 2015—by then, of course, it was too late since most of the gas had already migrated, making joint development with RIL unviable. While this resolves the question of whether RIL knowingly ‘stole’ ONGC’s gas, how is the ‘extra’ money it earned to be got back? Asking it to pay the market value of the gas—Rs 7,000-8,000 crore—is simplistic since, if the gas had to be taken out by ONGC, several thousands of crore would also need to be invested. Indeed, if the Niko report is quite the gold standard it is being made out to be, AP Shah quotes it as saying developing the ONGC area ‘could prove cost-prohibitive’.