Govt seeks $30 bn from Reliance & BP in KG-D6 gas field dispute

New Delhi: The government is seeking over $30 billion from Reliance Industries Ltd (RIL) and BP as compensation, alleging the partners built larger-than-required facilities at the KG-D6 fields and subsequently failed to meet natural gas output targets, sources said.

The government made the claim during its submissions before a three-member arbitration tribunal that on November 7 concluded hearings on the 14-year-old dispute.

The tribunal is expected to give its award sometime next year and the party that loses will most likely challenge it before the Supreme Court, three sources aware of the matter said.

Sources said the government in the arbitration proceedings sought monetary value of the natural gas that wasn’t produced as well as a compensation for excess amount spent on installations, fuel marketing, and interest.

It put the value for all of this at over $30 billion.

In a statement, Reliance said, “There is no claim of $30 billion against Reliance and BP” and it was “factually incorrect” to state that the government has sought $30 billion from it and its partner for underproduction from the KG-D6 gas field.

The claim was made by the government before an arbitration panel which is hearing the dispute.

A claim for a compensation before an arbitration panel or a court does not mean that a formal claim has been raised against any party. That statement only translates into an actionable claim once the panel gives its award in favour of the party seeking such compensation.

“The matters referred to in the report are entirely sub judice and would be determined in accordance with the laws of the country by its judicial system, in which Reliance has full faith. Reliance Industries Limited, together with its partner BP has at all times complied with its contractual and legal obligations and take strong exception to mischaracterization of facts in the report,” the company statement said.

It acknowledged a demand for $247 million in additional profit petroleum that the government made from Reliance and its partner following disallowance of $3.02 billion cost, saying the same have been “appropriately and consistently disclosed in the company’s annual audited financial statements, in accordance with its disclosure requirements.”

The dispute stems from alleged failure of Reliance to comply with approved investment plan that led to under-utilisation of capacity at the Dhirubhai-1 and 3 fields - the first and the largest of discoveries in the Krishna Godavari basin KG-DWN-98/3 (KG-D6) block to be put on production.

Natural gas output from Dhirubhai-1 and 3 (D1&D3) gas fields started to lag company projections from the very second year of production in 2010, and the field ceased to produce in February 2020, much ahead of its projected life.

Reliance, in an initial field development plan, had proposed a $2.47 billion investment to produce a peak of 40 million standard cubic meters per day of gas.

In 2006, it revised this to $8.18 billion, projecting a doubling of that output by drilling 31 wells by March 2011. But it drilled only 22 wells, of which only 18 were put to production. The well started shuttering earlier than expected due to unanticipated sand and water ingress, leading to the company mid-way revising the reserves in the field to only 3.10 trillion cubic feet (Tcf) instead of 10.03 Tcf estimated in the 2006 plan.

The government accused Reliance of deviating from the approved KG-D6 development plan and disallowed $3.02 billion in cost recovery, a move the company disputed, triggering arbitration in November 2011.

Proceedings were delayed after the Centre objected to tribunal appointments, including Sir Bernard Rix and Michael Kirby, but hearings began after the Supreme Court dismissed challenges in January 2023.

In arbitration, the government claimed over $30 billion for unproduced gas, excess spending and marketing margins.

Reliance and BP argue PSCs allow full cost recovery, saying geological surprises cut output, which fell sharply and stopped in February 2020. Reliance now holds 66.66 per cent stake after partner exits earlier.