India claims US$30 billion from Reliance Industries, BP for underproduction from gas field: sources

[NEW DELHI] India is seeking over US$30 billion in compensation from Reliance Industries and BP in an arbitration case for gas, it says the companies failed to produce from offshore fields, according to three sources with knowledge of the matter.

A tribunal has been hearing the dispute in India since 2016 over gas produced from two deepwater fields, D1 and D3, in the D6 block of the Krishna Godavari basin, seven individuals with knowledge of the proceedings said. Final arguments took place on Nov 7, they said.

The three-member tribunal is expected to deliver its verdict in mid-2026, two sources aware of the hearing schedule said. The verdict can be challenged in Indian courts, several sources said.

Reuters is reporting the case and India’s US$30 billion claim for the first time.

The D1 and D3 fields, India’s first major deepwater gas project, were seen as key to bolstering the country’s energy independence when first developed. However, the high-profile project was plagued by production difficulties related to water ingress and reservoir pressure, as well as cost-recovery disputes with the government, and failed to live up to initial production hopes, as previous public statements by Reliance and the government show.

In 2012, the oil ministry told parliament in a written statement that prior to commencing the work on the D6 gas fields, Reliance had estimated the recoverable reserves from D1 and D3 at 10.3 trillion cubic feet (tcf) before revising that down to 3.1 tcf.

A Reliance spokesperson said that the arbitration is confidential and did not comment on the case. A spokesperson for London-based BP, a Reliance partner in the fields, declined to comment.

Spokespeople for India’s federal oil, law and information ministries, and the prime minister’s office, did not reply to multiple requests seeking comment.

The gas block, located in the Bay of Bengal off the southern state of Andhra Pradesh, was awarded by the Indian government in 2000 to Reliance, a company controlled by billionaire Mukesh Ambani, under a production sharing contract.

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The US$30 billion claim is the largest ever pursued by the Indian government against a corporation and centres on its allegation that mismanagement by the companies resulted in the loss of most of the reserves in D1 and D3, three sources said.

In 2011, Reliance sold a 30 per cent stake in 21 oil-and-gas production sharing contracts (PSCs) that Reliance operates in India, including the KG-D6 block, to BP for US$7.2 billion.

Under the production sharing contract between Reliance and the Indian government, disputes must be settled by a mutually agreed arbitration tribunal.

Two individuals said that the government argued in the arbitration that Reliance had estimated recoverable gas reserves from D1 and D3 fields at about 10 trillion cubic feet, but had produced only about 20 per cent of that.

The government said that Reliance and BP should pay the government the value of the shortfall, two sources said. In their arguments to the tribunal, Reliance and BP disputed that they owed anything to the government, the two sources said.

In a public statement in February 2020 to announce it had ceased production at the D1 and D3 fields, Reliance said that overall production from the block that includes those fields had reached 3 tcf of gas equivalent. It was not clear from the statement how much of the gas came from the D1 and D3 fields.

Under the contract with the government, Reliance and its partners were allowed to recover costs from gas and oil sales before sharing profits with the government, both Reliance and the government have said in previous public statements. The government’s profit share was 10 per cent in the first year, and under the contract could rise subsequently once costs were recovered, the government has said in previous public comments.

During the arbitration hearings, the government justified its demand of US$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, two sources said.

It alleged that Reliance mismanaged the fields by pursuing what the government argued was “unduly aggressive” production methods, which involved extracting gas from fewer wells than the number initially planned, two sources said.

The government says Reliance used only 18 wells, instead of 31 planned, without adequate infrastructure, which resulted in damage to the reservoir, they said. REUTERS