A legal battle will probably ensue between India's biggest private sector oil company Reliance Industries Ltd, and the oil ministry, with the government asking RIL and its KG-D6 Andhra offshore Block partners to pay $1.55 billion as cost of gas that migrated to their side from an adjacent block belonging to state-run ONGC.
Responding to the demand note, RIL said it proposed to initiate arbitration since the demand was based on "misreading and misinterpretation of key elements of the PSC (production sharing contract) and is without precedent in the oil and gas industry anywhere in the world." The company released a statement saying, "RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government. RIL remains convinced of being able to fully justify and vindicate its position that the Government's claim is not sustainable."
"According to the Government, the Contractor is restricted to producing only that quantity of hydrocarbon as they existed at the point in time when the PSC was signed. This approach overlooks the fundamental fact that at that stage the work of exploration of the block has not even commenced and a complete lack of data makes it impossible to estimate the quantity of hydrocarbons available in the block. The liability of the Contractor has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary."
The ministry has demanded $1.47 billion for 338.332 million units of gas that migrated from ONGC's field in seven years ended March 2016. From this amount, $71.71 million royalty that RIL paid on this gas was demanded. But an interest of $149.86 million, charged at the rate of 2 per cent above Libor, was added to the amount to work out the total demand. The demand note follows direction set by US-based reservoir experts, DeGolyer and MacNaugton, appointed at the behest of the Delhi High Court. The report had confirmed ONGC's claim on migration of gas from its idle field into RIL's block, which started production in 2009.
"The committee has concluded that the contractor's (RIL- BP-Niko) production of migrated gas and retention of ensuing benefits amounts to unjust enrichment, since the production sharing contract (PSC)... does not permit a contractor to produce and sell migrated gas," the demand note said.
