Oil Min rejects RIL arbitration notice, terms it 'untenable'

The Oil Ministry has rejected Reliance Industries' (RIL) latest arbitration notice challenging the government decision to take away 814 sq km of its KG-D6 gas block, saying it was misconceived and untenable in law.

The ministry held that the move is in accordance with the provisions of the contract and there's no dispute that needs to be arbitrated upon. Official sources said the ministry gave reasons for its stand and cited provisions of the Production Sharing Contract (PSC) for that, asking RIL to withdraw the notice forthwith.

In line with the guideline on giving up non-discovery area, RIL had in 2013 offered 5,385 sq km out of a total 7,645 sq km in KG basin KG-D6 block

. But the ministry on October 30, 2013, ordered 6,198.88 sq km of total area to be taken away as the time of production had expired. RIL on January 14 challenged this order, stating the 814 sq km of additional area contained five gas discoveries holding close to 1 trillion cubic feet of reserves.

Sources said the ministry took the line that the exploration period for the KG-D6 block had lapsed on July 15, 2008, and so were timelines for submission of appraisal and field development plan for any discovery.

Timelines for satellite discoveries -- D4, D7, D8, D16 and D23 -- had been overshot and no development plan was submitted by the operator, the ministry said.

The January 14 arbitration notice was the third relating to KG-D6 block. RIL had initiated arbitration proceedings over deferred gas pricing formula that sought to double rates to USD 8.4 per million Btu.

While its partners BP of the UK and Canada's Niko Resources are parties in the first two arbitrations, they are not part of the latest notice.

In the arbitration notice, RIL had demanded that the dispute of taking away the area be referred to arbitration, the relinquishment order be withdrawn and compensation be paid for breach of contract by the government. According to the rulebook, a contractor is allowed to retain only that area where discoveries have been made.

But in the case of KG-D6, the Directorate General of Hydrocarbons (DGH) ordered a larger area to be pulled out as RIL had allegedly failed to develop the finds within the stipulated timeframe.

RIL in the notice has said the October 2013 order breached its right to retain the fields and the time period for approving these discoveries 'never expired' as the block oversight panel had agreed to a phased approach for their development.