Government Seeks Over $30 Billion From Reliance, BP In KG-D6 Gas Dispute

The Indian government has sought compensation of more than USD 30 billion from Reliance Industries Ltd (RIL) and its partner BP in a long-running dispute over natural gas production from the KG-D6 block in the Krishna-Godavari basin, sources said.

The claim was made during submissions before a three-member international arbitration tribunal, which concluded hearings on November 7. The tribunal is expected to deliver its award sometime next year, after which the losing party is likely to challenge the decision in the Supreme Court, according to sources familiar with the matter.

Reliance and BP did not immediately comment.

Sources said the government has demanded compensation for the value of gas that was not produced, excess expenditure on infrastructure, marketing margins, and interest, pegging the total claim at over USD 30 billion.

The dispute relates to the Dhirubhai-1 and Dhirubhai-3 (D1 & D3) gas fields in the KG-DWN-98/3, or KG-D6, block—India’s first and largest deepwater gas discoveries to be brought into production. Gas output from the fields began falling short of projections from the second year of production in 2010, and the fields stopped producing altogether in February 2020, far earlier than their projected lifespan.

Reliance had initially proposed an investment of USD 2.47 billion to produce 40 million standard cubic metres per day (mmscmd) of gas. In 2006, it revised the plan to USD 8.18 billion, projecting peak output of 80 mmscmd by drilling 31 wells. However, only 22 wells were drilled, of which 18 were put into production. The company later revised the estimated reserves sharply downward—from 10.03 trillion cubic feet (Tcf) to 3.10 Tcf—citing unexpected sand and water ingress.

The government has argued that the shortfall was caused by Reliance’s failure to adhere to the approved development plan, leading to under-utilisation of capacity. On this basis, it disallowed USD 3.02 billion of costs incurred by the consortium and sought additional profit petroleum of USD 247 million.

Reliance and BP have contested the government’s claims, arguing that the production sharing contract (PSC) under the New Exploration Licensing Policy (NELP) allows contractors to fully recover all approved development and operating costs before sharing profits with the government. They have maintained that oil and gas exploration is inherently high-risk, and that the production decline resulted from unforeseen geological factors rather than any deviation from the approved plan.

The consortium has also argued that all investments were approved by the management committee overseeing the block, which included representatives from the Directorate General of Hydrocarbons (DGH) and the petroleum ministry. They described the government’s move to “retroactively” disallow costs as being contrary to the PSC.

The arbitration process was delayed for years due to disputes over the appointment of arbitrators. After legal challenges by the government were dismissed by both the Delhi High Court in December 2022 and the Supreme Court in January 2023, the tribunal finally began hearings.

At its peak, gas output from D1 & D3 was expected to reach 80 mmscmd, but actual production was 35.33 mmscmd in 2011–12, 20.88 mmscmd in 2012–13, and 9.77 mmscmd in 2013–14, before steadily declining to zero in 2020.

Reliance originally held a 60 per cent stake in the KG-D6 block, with BP holding 30 per cent and Canada’s Niko Resources the remaining 10 per cent. After Niko exited, Reliance’s stake rose to 66.66 per cent, with BP holding the balance. BP had acquired its interest in 2010 for USD 7.2 billion.

The tribunal’s decision is expected to have significant implications for India’s upstream oil and gas sector and the interpretation of cost recovery provisions under legacy PSCs.