RIL contests ONGC’s allegation of gas theft from its blocks

Mumbai, 24 May, 2014

RIL today issued a statement on Quotes Attributed to ONGC Chairman. Following is full text of statement:

We are saddened by the statement attributed to ONGC

Chairman and Managing director Mr DK Sarraf by the Press Trust of India (annexed below) on Tuesday, May 20, 2014.

We deny the claim of apparent “theft” of gas from G4 & KG DWN 98/2 Block by Reliance Industries Limited (RIL) and can only attribute it to the likelihood of some elements in ONGC misleading the new CMD, Mr Sarraf, in order to hide their own failure to develop discoveries made over the last 13 years in these blocks.

ONGC approached RIL in mid-2012, to examine the possibility of sharing RIL’s KG D6 infrastructure in order to commercialize some of the discoveries in these blocks and an MoU was signed between RIL & ONGC in July 2013. We continue to see ONGC as a valued Industry peer, worthy of collaboration, to whom we will continue to provide assistance to help develop its discoveries and start production of valuable gas locked beneath the Indian Ocean to the benefit of the people of India.

It was only in August 2013, that ONGC brought the issue of possible connectivity between reservoirs in RIL & ONGC blocks, to the notice of RIL through DGH. Since then, as per international practice, ONGC and RIL have been engaged in the process of appointing an independent agency to investigate the issue of possible reservoir connectivity across the blocks. The two had met on May 9, 2014 and exchanged drafts regarding the scope of work to be assigned to such agency. On May 23, the parties again met and finalized the enquiry notice to be sent to four agreed international expert agencies. It was decided to issue the Enquiry Notice on May 26, 2014. Since the process for appointing this agency as per international practice was already well underway it is indeed unfortunate that some elements in ONGC forced invocation of the Delhi High Court at this juncture.

Resolution of such complex techno-commercial matters, that are not un-common in the Oil & Gas industry, is best done through the help of experts rather than public posturing. In any case, ONGC having already filed a petition in the Hon’ble Delhi High Court, we would have expected greater restraint in a matter that has been made sub-judice by them.

Brief facts:

Cairn made the first discovery in KG DWN 98/2(KG-D5) Block in 2001. RIL’s D1-D3 discoveries in KG DWN 98/3 (KG-D6) Block occurred in Oct 2002. All these deep water discoveries were in younger sediments of the Pliocene age. ONGC then farmed into Cairn’s KG D5 Block and took over Operatorship in 2005. ONGC, which had been operating the G4 nomination block since 1997, made its first Pliocene discovery in this block in early 2004.

However, while RIL had brought its D1-D3 discoveries into commercial production by April 2009 after a mere six and a half years from discovery, ONGC is yet to commence development of any of the discoveries in its two blocks.

All wells drilled by RIL during the development of D1-D3 (in KG D6) are well within the block boundaries and approved in accordance with the PSC by the Management Committee consisting of Government representatives, who have the power to veto.

In mid-2012, ONGC, in view of techno-economic challenges of developing the discoveries in its two blocks, had approached RIL to examine the possibility of sharing RIL’s infrastructure so that it could commercialise gas discoveries, some of which were discovered more than thirteen years ago. In July 2013, RIL and ONGC entered into a MOU following which RIL has been providing relevant data and information to assist ONGC develop its resources.

Notably, connectivity of reservoirs had never been raised as an issue by ONGC till then. RIL became aware of this issue in late August 2013 through DGH. In September, RIL began constructive discussions with ONGC and DGH. In the absence of any production data from ONGC’s blocks, connectivity could not be established straightaway. In fact, in 2007, ONGC had also acquired high resolution 3-D seismic data extending into KG-D6 Block. Thus ONGC was having data across both sides of the block boundaries. Had connectivity been an open and shut case, ONGC need not have waited so long to approach DGH or RIL. However, the issue has been raised, discussions commenced and the need for the appointment of an expert third party was recognised.

Both parties agreed to the appointment of an independent expert third party to look at the available data and reach a conclusion whether connectivity exists and possible volumes. This is in accordance with well-established practices for resolving such issues which are not uncommon in the oil and gas industry. The PSC also recognises these practices and provides accordingly.

On May 9, 2014 it was agreed that an enquiry be floated and four jointly selected global independent experts finalized for the purpose. The parties exchanged drafts of enquiry and met on May 23, 2014. They have now finalized the scope of work and the Enquiry Notice is being issued on 26 May 2014.