Given the way the issue played out in the media, it can be argued the government had no option but to press ONGC to claim Reliance Industries Limited (RIL) had \u2018stolen\u2019 its gas and demand $1.6 billion in damages for this. But, while the media can be accused of sensationalising the matter, calmer heads should have prevailed in both the government and ONGC. After all, while it is true 0.3 tcf of the gas RIL had extracted from its KG Basin fields actually belonged to ONGC\u2019s 98\/2 field, adjacent to RIL\u2019s\u2014this was based on a report by reservoir consultant DeGolyer and MacNaughton (D&M)\u2014the cost of this gas and the losses to ONGC were very different. After all, ONGC would have had to invest several billion dollars to take out the gas, so ONGC\u2019s claim would have to be restricted to profits after taking the capex\/opex into account. Not surprising then, that the international arbitration panel that was examining the issue has not just refused to grant ONGC its claim, it has asked it to pay RIL for legal fees incurred. Indeed, since oil\/gas migration from one field to another is not a new thing, ideally ONGC and RIL should have jointly developed the field when the migration was discovered. And, while ONGC\/government were quick to blame RIL and claim it knew the reservoirs were connected, the facts show ONGC and the regulator in a poor light as well since neither realised the reservoirs were interconnected, though they had data on it for several years before RIL started extracting gas. The reason why they didn\u2019t realise this is that discovering connectivity isn\u2019t easy. Indeed, forget about ONGC, RIL\u2019s estimates for its own fields were horribly wrong. It upped its original estimates of gas-in-place in the field from 7 tcf to 12 tcf\u2014and the recoverable reserves from 5.6 tcf to 10-11 tcf\u2014and later slashed the recoverable reserves to 2.9 tcf; when the D&M report came out, it estimated the gas-in-place reserves at 2.9 tcf. Though Tuesday\u2019s arbitration ruling is not related, it will have important implications for the government\u2019s larger case against RIL for artificially inflating its capital costs. While the CAG\u2019s audit report had first talked of RIL\u2019s capital costs being too high, when the government finalised its stance, it took a different tack. Rather than getting into whether the capex was padded, since this would have been difficult to prove, the government said RIL had promised a certain gas output for the capex and, since it had not delivered on that promise, part of the capex would be disallowed\u2014under the profit-petroleum rules, as the capex rises, the government gets less profits; so, by disallowing part of the capex, the government said RIL had to pay it a higher profit-petroleum. Till now, around $3.2 billion of RIL\u2019s capex has been disallowed. In FY15, for instance, the oil ministry disallowed $2.8 billion of such expenses, or 59% of the capex incurred by RIL as the gas produced was 59% less than what RIL had supposedly promised; in FY16, the disallowed expenses rose to $3.1 billion or 65% of capex. This was always a tenuous argument since the production sharing contract (PSC) doesn\u2019t link capex with output\u2014all capex is to be recovered from the oil\/gas output\u2014but it worked since the government\u2019s unstated argument was that RIL wasn\u2019t producing the gas because it wanted to wait till prices rose. At that point, prices were $4.2 per mmBtu while RIL was lobbying for around double of that price. But, now that the D&M report has shown there is very little gas left in RIL\u2019s fields, the government can no longer argue RIL was hoarding gas; and if it can\u2019t do that, it may not be possible to justify disallowing $3.2 billion of capex.