In a setback for Mukesh Ambani-led Reliance Industries Limited and its partner BP Plc, the Delhi High Court has overturned an international arbitration tribunal's ruling that held the duo not responsible for paying any compensation for the gas they produced and sold, which had allegedly migrated from adjoining fields.
Fields in question: Block or area KG-DWN-98/3, known as KG-D6, was awarded to a consortium of Reliance Industries Ltd and Niko Resources of Canada in the first bid round under New Exploration Licensing Policy (NELP) in 2000 by the Atal Bihari Vajpayee government. (BP bought a 30 per cent stake in the block more than a decade later).
In the same round, block KG-DWN-98/2 (KG-D5) was awarded to Cairn Energy India Ltd, which was subsequently acquired by state-owned Oil and Natural Gas Corporation (ONGC) in two phases. An adjacent Godavari block was awarded to ONGC on nomination basis in 1997.
Reliance started output from KG-D6 in 2009 while ONGC started output in January 2024.
Dispute: The dispute began in July 2013 when, suspecting reservoir connectivity of its KG-D5 and G-4 blocks with that of Reliance's KG-D6, ONGC on July 22, 2023 wrote to the DGH stating a detailed geological & geophysical (G&G) interpretation of the available data on the Godavari and KG-DWN-98/2 blocks shows "evidence of lateral continuity of gas pools" into KG-D6. Simply put, it meant that subsurface gas pools of the Reliance block and the ONGC blocks appeared to be connected with possible migration of gas between the two.
And since Reliance started producing first, it might have drained out ONGC's resources as well.
ONGC requested the Directorate General of Hydrocarbons (DGH), an upstream regulatory arm of the Union Ministry of Petroleum and Natural Gas, to provide it with G&G data, along with the production and well data of the contiguous area of block KG-DWN-98/3.
Media Leak: The issue got leaked to the media and a small news item appeared in one of the dalies. As was the practice of any material event, this was presented to the board of ONGC in April 2014. The board asked the management to review the matter and report back.
Election day petition: As directed by the board, the company management reverted with a detailed report. The board asked the management to take legal steps to protect its interest. The options before ONGC was to either file an FIR for "theft" of its gas by Reliance or file a civil suit claiming damages. While a criminal case (FIR) was ruled out, the board felt a civil case could drag on for decades.
A way out was to file a writ petition, which are promptly taken note of by the high courts. But a writ can be filed only against the state. Since DGH as a custodian of resources and supposed to have known of the connectivity issue when it approved detailed development plans of Reliance, ONGC decided to file the writ against the DGH and the ministry. Reliance was the third respondent.
The petition was filed before the Delhi High Court a day before counting of the general elections on May 15, 2014.
On September 10, 2014, the Delhi High Court disposed of ONGC's petition and directed the government to take a decision, after it received a report from an independent panel set up by ONGC and RIL.
Eyebrows raised: ONGC's petition did raise a few eyebrows then. The petroleum ministry ordered an enquiry into whether ONGC had consulted the ministry before filing the writ petition against its largest stakeholder the Union of India and upstream regulator DGH.
The ministry's probe showed that then joint secretary (exploration) Armane Giridhar "was aware about the decision to file the writ, though he may not have been fully aware about its fallout viz the government being made the first respondent".
Armane, who was also a member of ONGC board, which took the decision on April 24, 2014, had suggested that "only referring the matter to the Government of India may not be of much use as GoI would be seen as an interested party and a conflict of interest could arise".
Third party consultant: DeGolyer and Mac Naughton (D&M) was appointed to carry out a third-party study. In its final report dated November 19, 2015, D&M concluded inter-alia that "the integrated analyses indicated connectivity and continuity of the reservoirs across the blocks operated by ONGC and Reliance".
The report quantified the volume of gas migrated from Godavari PML and KG-DWN-98/2 to KG-DWN-98/3 block and respective production of gas from migrated volumes till March 31, 2015.
From April 1, 2009 till March 31, 2015, 7.009 billion cubic meters and 4.116 bcm of gas had migrated from Godavari PML and D1 discovery of KG-DWN-98/2 block, respectively, to KG-DWN-98/3 block. Of these migrated gas volumes, 5.968 and 3.015 BCM of gas was produced by Reliance.
D&M even gave a value of ONGC's gas produced by Reliance - around Rs 10,000 Crore.
