Reliance, BP stare at Rs. 24,500-cr penalty

New Delhi: The government has slapped a $2.81 billion (Rs24,500 cr) demand notice on Reliance Industries Ltd (RIL) and its partners, including BP Plc for gains made from producing and selling natural gas that may have migrated from neighbouring block of state-owned ONGC.

This follows the Delhi High Court’s decision on February 14, overturning an international arbitration tribunal ruling that held the duo not responsible for paying any compensation for the gas they produced and sold which had allegedly migrated from adjoining fields.

“Consequent upon the Division Bench judgment, the Ministry of Petroleum and Natural Gas has raised a demand of $2.81 billion on the PSC contractors namely Reliance Industries Ltd, BP Exploration (Alpha) Ltd and NIKO (NECO) Ltd,” Reliance said in a stock exchange filing.

Originally, Reliance held 60 per cent interest in Krishna Godavari basin deep-sea block KG-DWN-98/3 or KG-D6 while BP had 30 per cent and Canadian firm Niko held the remaining 10 per cent. Subsequently, Reliance and BP took over Niko’s interest in the production sharing contract (PSC) and now hold 66.66 per cent and 33.33 per cent, respectively.

The government had in 2016 sought $1.55 billion from Reliance and its partners for the quantum of gas that had migrated to its block KG-D6 from adjoining fields of ONGC. Reliance contested the claims before an arbitral tribunal which in July 2018 upheld that it was not obliged to pay any compensation. The government filed an appeal and in May 2023, a single judge of Delhi High Court upheld the arbitration award, dismissing the government's appeal. A division bench of the Delhi High Court last month set aside the single judge order, ruling against Reliance and its partners.

Reliance said the letter of demand was received by the company on March 3, 2025. “The company is legally advised that the Division Bench judgment and this provisional demand are unsustainable. The company is taking steps to challenge the judgment of the Division Bench of Hon'ble Delhi High Court,” it said.

“The company does not expect any liability on this account,” it added.

Reliance had previously said that it would appeal the decision in the Supreme Court. The dispute dates back to July 2013 when Oil and Natural Gas Corporation (ONGC) suspected reservoir connectivity of its KG-DWN-98/2 (KG-D5) and G-4 blocks with that of Reliance's KG-D6. It felt that at least four wells that Reliance drilled on the borderline with KG-D5 may have drained out its resources as well. ONGC in May 2013 filed a writ in the Delhi High Court seeking compensation for the loss. On September 10, 2014, the Delhi High Court disposed-off ONGC's petition and directed the government to take a decision, after it received a report from an independent panel set up by ONGC and RIL.

Global consultant DeGolyer and Mac Naughton (D&M) was appointed to carry out a third-party study. In its final report dated November 19, 2015, D&M concluded inter-alia that "the integrated analyses indicated connectivity and continuity of the reservoirs across the blocks operated by ONGC and Reliance."