Reliance Industries-ONGC gas row: Arbitration next port of call

New Delhi: As oil regulator DGH finalises the amount Reliance Industries may have to pay for producing ONGC's gas, the matter appears headed for arbitration owing to the premise used by AP Shah Committee that went into the issue.

The one-man AP Shah panel had in August 30 report stated that natural gas had indeed migrated from ONGC's KG basin blocks in Bay of Bengal to adjoining fields of RIL but opined that the compensation for the same should be paid to government as the natural resource belonged to the state.

It further stated that the gas migration issue needs to be resolved within the parameters and provisions of the Production Sharing Contract (PSC) instead of any other method like bilateral agreement.

As RIL has contested knowingly producing any gas belonging to ONGC, any amount that is sought from it would be fiercely contested. Arbitration would be resorted to as that is the dispute resolution mechanism set out under PSC for settling any differences between the government and a private contractor, according to legal experts advising Oil Ministry.

The Oil Ministry had asked its technical upstream arm DGH to calculate the amount of gas that had migrated from ONGC's blocks to KG-D6 fields of RIL.

"DGH is finalising the amount that RIL should be asked to pay for producing natural gas belonging to ONGC," an official said adding the amount will be announced within days.

RIL contests any claim of compensation on the premise that it drilled all wells within its own block boundaries and only after explicit premission from the government.

Also, migration is a natural phenomenon and contractor cannot be held liable for unfair enrichment for migrated gas that has been extracted from wells drilled within its own block.

Interestingly, along with the natural flow of gas, water too has migrated from ONGC's adjoining blocks into RIL's KG-D6 resulting in a low recovery of gas from Dhirubhai fields.

ONGC had in late 2013 claimed that it suspect extension of reservoirs from its blocks into RIL's KGD6. This was based on seismic data available to it at least since 2007.

Justice AP Shah notes in his report that if ONGC brought this issue in 2007 itself, this dispute could have been avoided.

Continuity and extension of reservoirs between ONGC blocks and KG-D6 was established by independent expert D&M in late 2015 which said as much as 11.122 billion cubic metres of ONGC gas had migrated from its Godavari-PML and KG-DWN-98/2 blocks to adjoining KG-D6 of RIL between April 1, 2009 and March 31, 2015. Justice AP Shah was then asked to go into the D&M report.

Shah in his report has stated that ONGC doesn't have any claim on the migrated gas and agreed to government's (represented by the DGH) oral submissions (that was contrary to its written submissions) that gas belongs to the government and RIL has been unfairly enriched and liable to pay compensation on the migrated gas.