Companies

KG-D6 gas dispute may cost Reliance Ind over $1.2 billion

Richa Mishra New Delhi | Updated on January 27, 2018 Published on October 31, 2016

BL01_01_RELIANCE_KG_BASIN_GAS

Govt grappling to fix compensation for gas migration from ONGC fields

Reliance Industries Ltd and one of its partners in the KG-D6 block — Niko Resources — may end up paying the government about $1.25 billion as compensation for benefits they derived from the natural gas that allegedly migrated from ONGC’s adjacent fields in the Krishna-Godavari Basin off the Andhra Pradesh coast.

Officials remain tight-lipped about the monetary compensation payable by RIL. However, the buzz is that Mukesh Ambani’s company and its partner in the block may be asked to pay compsnation of that magnitude.

Sources said the Directorate-General of Hydrocarbons (DGH) had, in its first draft, given the indicative number of $1.25 billion to the Ministry for Petroleum and Natural Gas. The DGH has been working on the monetary compensation based on the recommendations and model suggested by the single-member Justice AP Shah Committee.

Indications are that the figures have been derived based on calculations in respect of gas price and volume done on a monthly basis, and after deducting the royalty, cess and profit petroleum that the contractors have paid the government on the produce so far.

A tough call

Sources told BusinessLine that the government will not find it easy to determine the precise amount of compensation, which in any case will be open to challenge by the contractors.

For instance, between April 2009 and March 2015, the royalty calculations rose from 5 per cent to 10 per cent; the variance could influence the determination of the compensation. Second, it’s not clear what the gas price will be taken as. The prevailing gas price — $4.2/unit (gas is measured in million British thermal units) — is in dispute. Whether the government will work within the terms of the production sharing contract (PSC) or outside it is not known, sources said.

Devil in the details

Both Reliance Industries and ONGC will want to read the fine print of any government formulation before respoding to it. ONGC believes that the Shah panel has been unfair to it.

Confirming the continuity of reservoirs, the committee had said that independent consultant DeGoyler & MacNaughton’s report must form the basis for the migration of gas up till 2015, and that migration of gas post-2015 has to be inquired into by the government.

Quantifying the migration

It had quantified the amount of gas that migrated from Godavari PML and D1 discovery area of ONGC’s KG-DWN-98/2 to RIL’s Block of KG D6 from April 2009 to March 2015. It also quantified the amount of gas that is likely to further migrate from April 2015 to March 2019. The D&M report found that up to 15 per cent of the gas could belong to ONGC.

It calculated that from April 2009 till March 2015, about 7.009 billion cubic metres and 4.116 billion cubic metres of gas had migrated from the Godavari PML and D1 discovery of ONGC’s acreage to RIL’s block. Of this, 5.968 billion cubic metres and 3.015 billion cubic metres, respectively, were produced. The reserves in the D-1 and D-3 fields of the Reliance-BP-Niko KG D6 block total 2.9 trillion cubic feet, of which 2.1 trillion cubic feet or more have been extracted.

Published on October 31, 2016

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