New Delhi: RIL denied a Reuters news report that said the government had sought compensation of $30 billion from the company for producing gas at below estimated reserves from its KG-D6 block.
“There is no claim of $ 30 billion against Reliance and BP,” RIL, the operator of the KG-D6 field, said in a statement on Monday. “The claim made by government of India in relation to KG-D6 Block is of the order of $247 million which has been appropriately and consistently disclosed in the company’s annual audited financial statements.”
The compensation claim is linked to a dispute that dates back more than a decade, arising after the government disallowed a portion of the investment already made by the consortium of RIL, BP and Niko in developing drilling and evacuation infrastructure at the KG-D6 block. The field is governed by a production sharing contract, under which companies are allowed to first recover their costs before sharing profits with the government in a pre-determined ratio.
Arbitration proceedings have been underway since 2016, with final hearings completed and an award expected next year.
“Reliance Industries Limited, together with its partner BP has at all times complied with its contractual and legal obligations and take strong exception to mischaracterisation of facts in the (Reuters) report,” the company said.
Reuters reported that RIL produced only 20 per cent of its initially estimated recoverable gas reserves from the D1 and D3 fields, estimated at about 10 trillion cubic feet. It said the government has sought compensation from RIL and BP for the shortfall.
“During the arbitration hearings, the government justified its demand of $30 billion in compensation by saying that it owned any gas discovered under the contract and that mismanagement had led to most of the reserves being lost,” Reuters said, citing unnamed sources. The government “alleged that Reliance mismanaged the fields by pursuing what it described as ‘unduly aggressive’ production methods, involving extracting gas from fewer wells than the number initially planned,” the report added, stating that drilling only 18 wells instead of the planned 31 damaged the reservoir.
Reliance has maintained geological surprises curtailed gas output from the KG-D6 block and has termed the government’s denial of cost recovery as unfair, leading to arbitration. Under the production sharing contract, a management panel with two government representatives has the final say on all decisions, and the operator cannot incur expenditure without its approval. RIL has argued that it was therefore inappropriate to disallow costs that had already been incurred.
