India to challenge gas migration arbitration order

India to challenge gas migration arbitration order

New Delhi: The Indian government will challenge the decision of an international tribunal that has awarded in favour of Reliance Industries Ltd (RIL), controlled by Mukesh Ambani, and its partners BP Plc and Niko Resources Ltd, in a gas migration dispute, said a top government functionary.

The tribunal also awarded costs of $8.3 million to be paid by the government to the consortium.

The dispute pertains to a $1.55 billion penalty imposed on RIL and its partners BP Plc and Niko Resources Ltd by the Indian government over allegedly exploiting gas reserves belonging to state run Oil and Natural Gas Corporation Ltd. (ONGC) in the course of its own drilling activities. The adjacent deepwater fields in question are RIL’s D6 field (KG-DWN-98/3) and ONGC’s KG-DWN-98/2 block, in the Krishna-Godavari (KG) basin off India’s east coast. RIL and its partners BP Plc and Niko Resources Ltd together own the D6 block.

“We will challenge it. Whatever is the process after arbitration we will follow it,” said a top government functionary requesting anonymity.

The petroleum ministry had raised the demand on 4 November 2016, giving RIL one month to pay up, after the Justice A.P. Shah panel told the ministry on 31 August that RIL should make up for the “unfair enrichment” it had obtained by way of retaining the gains of gas that seeped into its field from that of ONGC.

While a RIL spokesperson declined comment on the government’s plans to challenge the arbitration, a senior ONGC executive added, “In all probability, the arbitration’s decision will be challenged.”

According to a report by DeGolyer and MacNaughton, a US-based consultancy selected by both ONGC and RIL which was relied upon by the Shah panel for confirmation of the gas flow between the blocks, about 11 billion cubic metres (bcm) of gas migrated to KG D6 from adjacent fields between 1 April 2009 and 31 March 2015, of which 8.9 bcm was tapped by RIL.

“All the contentions of the Consortium have been upheld by the majority with a finding that the Consortium was entitled to produce all gas from its contract area and all claims made by the Government of India have been rejected. The Consortium is not liable to pay any amount to the Government of India,” RIL said in a filing to the stock exchanges on late Tuesday evening.

ONGC has been unable to produce from the deepwater field off the coast of Andhra Pradesh and is scouting for a partner after Norway’s Statoil ASA and Brazil’s Petroleo Brasileiro SA (Petrobras) quit the consortium. ONGC has been battling concern over its production capabilities and diminishing yields at its ageing oil fields. Most of the company’s domestic fields are more than 30 years old.

source: livemint