Daijiworld Media Network - New Delhi

New Delhi, Dec 29: India is seeking more than $30 billion in compensation from Reliance Industries and its partner BP in an arbitration case over gas that the government claims was never produced from two offshore deepwater fields in the Krishna Godavari (KG) basin, according to people familiar with the matter.

A three-member arbitration tribunal has been hearing the dispute since 2016, centred on gas production from the D1 and D3 fields in the KG-D6 block, India’s first major deepwater gas project. Final arguments were concluded on November 7, and the tribunal is expected to deliver its verdict by mid-2026. The ruling can be challenged in Indian courts.

This is the first time details of India’s $30 billion claim have been reported publicly. If upheld, it would be the largest compensation demand ever pursued by the Indian government against a corporation.

The D1 and D3 fields were initially projected to play a key role in boosting India’s energy security. However, the project faced repeated setbacks due to water ingress, declining reservoir pressure and disputes over cost recovery. In 2012, the oil ministry told Parliament that Reliance had initially estimated recoverable reserves at 10.3 trillion cubic feet (tcf), later revising the estimate down to 3.1 tcf.

The KG-D6 block, located in the Bay of Bengal off Andhra Pradesh, was awarded to Reliance in 2000 under a production-sharing contract. In 2011, BP acquired a 30 per cent stake in 21 production-sharing contracts operated by Reliance in India, including KG-D6, for $7.2 billion.

According to sources, the government has argued before the tribunal that Reliance estimated recoverable reserves from D1 and D3 at around 10 tcf but produced only about 20 per cent of that volume. It has claimed that mismanagement by Reliance and BP led to the loss of most of the reserves, and that the companies should compensate the government for the value of the shortfall.

The government has also alleged that Reliance adopted “unduly aggressive” production methods, extracting gas from only 18 wells instead of the 31 originally planned, without adequate supporting infrastructure, resulting in damage to the reservoir.

Reliance and BP have disputed the claims and argued that they owe nothing to the government. A Reliance spokesperson said the arbitration proceedings are confidential, while BP declined to comment. Government ministries and the Prime Minister’s Office did not respond to requests for comment.

In February 2020, Reliance announced that it had ceased production from the D1 and D3 fields, stating that overall output from the KG-D6 block had reached about 3 tcf of gas equivalent, without specifying how much came from the two disputed fields.

Under the production-sharing contract, Reliance and its partners are allowed to recover costs from gas sales before sharing profits with the government. The government’s profit share begins at 10 per cent and can increase after cost recovery.

The arbitration outcome is being closely watched, given its potential financial impact and broader implications for India’s oil and gas sector.