KG Basin issue: Govt imposes $1.55 billion fine on RIL, BP and Niko

07 November 2016

The Indian government on Friday slapped a $1.55 billion fine on Reliance Industries Ltd (RIL) and its partners BP Plc. and Niko Resources Ltd, for extracting gas from state-run Oil and Natural Gas Corp. Ltd’s (ONGC’s) deepwater block in the Krishna-Godavari basin for seven years.

The Contractor (RIL, BP and Niko) has worked within the boundaries of the block awarded to it and has complied with all applicable regulations and provisions of the Production Sharing Contract (“PSC”). The claim of the Government is based on misreading and misinterpretation of key elements of the PSC and is without precedent in the oil & gas industry, anywhere in the world.

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. RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government.

BP, too, confirmed receiving the letter and said the “resolution of such geological boundary disputes should be based on well-established international petroleum industry practices and in line with the PSC.

Whatever benefits the companies may have derived was liable to be returned to the government, the report said. The committee did not recommend any compensation to ONGC, which it said had no ownership rights over the natural resource.

The Government of India, and not ONGC, is entitled to claim restitution from RIL for the unjust benefit it received and unfairly retained. ONGC has no locus standi to bring a tortuous claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas.

ONGC claims that between 1 April 2009 and 31 March 2015, about 11 billion cubic metres (bcm) of gas flowed to KG D6 field from adjacent fields, of which 8.9 bcm was appropriated by RIL, said the panel, citing a report by DeGolyer and MacNaughton, a US-based consultancy hired jointly by ONGC and RIL which had earlier confirmed flow of gas from ONGC’s field to RIL’s. At the prices prevailing at that time, the gas was worth Rs11,000 crore.

ONGC’s two blocks are adjacent to the RIL-operated block. Calgary-based Niko Resources has a 10% stake in RIL’s block while UK- based BP has a 30% stake.

Source – Livemint