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Gas giants in a ‘draining’ battle

ONGC takes Reliance to court, alleging years of stealing from its offshore block and a sleeping government, right after it was agreed there would be a probe by experts

It can be termed the clash of the titans in the hydrocarbon space or the alleged “great gas robbery”.

Government-owned Oil and Natural Gas Corporation (ONGC), the country’s largest producer of both, alleges Mukesh Ambani’s Reliance Industries (RIL), the country’s largest private company by market capitalisation, has stolen gas worth Rs 30,000 crore from its block in the Krishna-Godavari (KG) basin. Approaching the high court last month, the Maharatna major says RIL had drawn out 18 billion cubic metres of natural gas from 2009 to September 2013 from its assets.

The puzzle is if it is really possible to draw gas from someone else’s field. If yes, why is there a dramatic drop in the production of RIL from its D6 block in the KG basin ( KG- D6), which adjoins that of ONGC, over the past four years? And, why did ONGC go to court right after agreeing to a probe by global experts? The ONGC petition says four wells have been drilled by RIL within distances ranging from 50 to 350 metres from the PSU block.

Where it started

The story of alleged gas stealing started when the KG- DWN- 98/ 2 and Godavari PML blocks came under the possession of ONGC in 2005 and 1997, respectively. Adjacent to these blocks is the controversial KG- DWN- 98/ 3 (popularly known as D6), operated by Reliance. The ONGC petition states four wells (KGD6B8, KG- D6- A5, KG- D6- A9 and KG- D6- A13) were drilled by RIL in a calculated angular incline, with a clear idea to tap the former’s reserves. In court last week, the company alleged Rs 30,000 crore worth of leakage since 2009. To a question on whether such an overflow is possible, industry experts say it can be. Internationally, the process is called draining by one licensee from another’s block. To solve these issues, normally a joint development plan is prepared by the two players.

In Mozambique, for instance, the operators of Area 1, Anadarko, and of Area IV, ENI, have adopted a similar model. Similarly, companies in the North Sea follow the unitisation method to arrive at optimal sharing of resources and output.

However, in the case of ONGC and RIL, this was never done.

This is the question ONGC is seeking an answer to, putting the onus on the government and the Directorate General of Hydrocarbons (DGH), stating they should have been vigilant enough to realise the likelihood of a common or continuous reservoir between the blocks of both parties. It says the government should have asked for a joint development plan much before.

When asked, ONGC chairman DK Saraf refused to respond, saying the matter was in court.

Despite the alleged leakage since 2009, ONGC first wrote a letter to the hydrocarbon regulator only in July 2013, seeking data related to continuity of the blocks. The next month, ONGC took up the issue of possible connectivity between reservoirs in the RIL and ONGC blocks, bringing it to the notice of RIL through DGH. After several rounds of talks, on May 26 this year, ONGC and RIL had met and finalised an enquiry notice to be sent to four agreed international expert agencies, as part of a plan to appoint an international expert.

Interestingly ONGC took to the courts soon after.

A person privy to the development asked, “Despite reaching a solution of appointing an expert, why ONGC approached the court is a mystery. Moreover, RIL has till now invested around $10 billion in KG- D6 and its return is roughly $ 9 bn, including the government’s share of profit petroleum. So, if they allege RIL has stolen gas, do they mean RIL has not yet produced from its wells? In that case, why is there a drop in production of an accumulated 154 million standard cubic metres a day (mscmd) from the KG-D6 block during four years to 2013-14?” ONGC is expected to start production from the fields only by 2017. It had planned a capital expenditure of Rs 51,000 crore ($ 9 bn) on the block by 2030.

According to RIL, why was the issue not raised even when ONGC approached them with an infrastructure sharing plan in mid-2012 to commercialise the latter’s discoveries? ONGC wanted to utilise the pipeline and other offshore and onshore facilities by RIL, capable of handling gas output of 80 mscmd. RIL is already facing an arbitration process regarding the drop in production from KG-D6. Compared with the targets approved earlier, the production shortfall was five mscmd in 2010-11, 28 mscmd in 2011-12, 55 mscmd in 2012-13 and 66 mscmd in 2013-14. “ If the ONGC allegation is true, where is the gas, as production from KG- D6 has dropped to 13 mscmd now? If you are stealing, the company should either produce or flame out the gas,” an official added.

For the time being, it is yet another legal controversy added to those on KG-D6.

Krishna- Godavari Basin is one of the 26 sedimentary basins in India, covering about 50,000 sq km in the Krishna and Godavari river basins in Andhra Pradesh. KG- DWN- 98/ 2 and Godavari PML are blocks operated by ONGC, while KG- DWN- 98/ 3 (popularly known as D6), operated by Reliance Industries (RIL), is an adjacent block to it. ONGC alleges four wells — KG- D6B8, KG- D6- A5, KG- D6- A9 and KGD6A13 — were drilled by RIL with a calculated angular incline with a clear idea to tap its gas reserves. ONGC adds RIL has drawn out 18 billion cubic metres of natural gas from 2009 to September 2013, due to which ONGC says it has suffered a loss of gas worth Rs 30,000 crore

RIL’S STAND SO FAR

ONGC officials are hiding their own failure to develop discoveries made over the past 13 years in these blocks In mid- 2012, ONGC had approached RIL for sharing of the latter’s infrastructure to commercialise the PSU’s discoveries. In August ‘13, ONGC brought the issue of possible connectivity between reservoirs in RIL & ONGC blocks, to the notice of RIL through DGH. On May 26, 2014, both ONGC and RIL had met and finalised enquiry notice to be sent to four agreed international expert agencies, as per the international practice.

TECHNICAL BACKGROUNDER

According to experts, over millions of years, gas could have been formed in such a manner that there would be continuity over a long distance, sometimes as much as tens of kilometres or more. Natural gas would be trapped in such a manner that exploitation at one end in one block would actually result in draining out gas from the reserves situated in someone else’s block.

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