Center loses $111m in gas field appeal against Reliance and Shell

Government loses $111 million in arbitration challenge in Reliance/Shell dispute

New Delhi:

The government has lost its appeal in the English High Court against a $111 million arbitration award in favor of Reliance Industries Ltd and Shell in a dispute over cost recovery at the Panna-Mukta and Tapti offshore oil and gas fields.

High Court Judge Ross Cranston ruled on June 9, 2022 that the government should have raised its objections to the arbitral tribunal’s failure to meet the required thresholds, when issuing the 2021 award earlier, said two sources with knowledge of the matter.

Rejecting the government’s arguments, the court said objections were prohibited by a principle of English law that a party cannot raise in new proceedings issues which might have been raised in earlier proceedings.

While an email sent to the Ministry of Petroleum and Natural Gas for comment went unanswered, officials said the government would review the court order and seek appropriate forums to address it.

A separate email sent to Reliance for comment also went unanswered.

On December 16, 2010, Reliance and Shell-owned BG Exploration & Production India took the government to arbitration over cost recovery arrangements, state profits and the amount of statutory contributions, including royalties to pay.

They wanted to raise the limit on the costs that can be recovered on the sale of oil and gas before the profits are shared with the government.

The Indian government has also raised counterclaims relating to incurred expenses, inflated sales, recovery of excess costs and overdraft accounting.

A three-member arbitration panel led by Singapore-based lawyer Christopher Lau rendered a majority Partial Final Award (FPA) on October 12, 2016.

He supported the government’s view that the profit from the fields should be calculated after the deduction of the current 33% tax and not the 50% rate that previously existed.

He also confirmed that the cost recovery in the contract is set at $545 million in the Tapti gas field and $577.5 million in the Panna-Mukta oil and gas field.

The two companies wanted the provision for costs increased by $365 million at Tapti and $62.5 million at Panna-Mukta.

The royalty, he said, was to be calculated after including the marketing margin charged in addition to the wellhead price of the natural gas.

The government used this award to seek $3.85 billion in dues from Reliance and BG Exploration & Production India Ltd (BGEPIL).

Both firms challenged the 2016 FPA in the English High Court, which on 16 April 2018 remitted one of the disputed issues to the Arbitral Tribunal for reconsideration.

The arbitral tribunal ruled in favor of both in an award dated January 29, 2021.

“The Arbitral Tribunal ruled largely in favor of the Claimants (Reliance and BGEPIL) in its partial final award dated October 1, 2018.

The Indian government and the plaintiffs have filed an appeal in the English Commercial Court against this 2018 FPA,” Reliance said in its annual report last year.

“The English Commercial Court dismissed the GoI’s challenges to the 2018 partial final award and upheld the claimants’ challenge that the arbitral tribunal had jurisdiction over the limited matter and referred the matter back to the arbitral tribunal” , he added.

The final award on the matter came in January 2021, he had said.

Subsequently, both parties filed requests for clarification in court, which on April 9, 2021 granted minor corrections requested by Reliance and Shell and denied all government requests for clarification.

The government subsequently challenged the decision in the English High Court.

The court issued its decision on June 9, 2022, they said.

The government had used the 2016 partial award not only to lift a $3.85 billion demand on Reliance and Shell, but had also sought to block Reliance’s proposed $15 billion deal with Saudi Aramco on the grounds that the company owed him money.

Following this, the court required the company executives to file affidavits listing the assets.

Reliance and Shell had responded to the government’s petition to the Delhi High Court, arguing that the petition constituted an abuse of process, as no arbitration award had fixed ultimate liability for dues for the company.

“The Government of India has also filed an enforcement petition in the Delhi High Court…seeking the enforcement and enforcement of the FPA 2016,” the annual report said. “Plaintiffs argue that the GoI’s motion for execution is untenable.”

The government’s petition for execution is currently pending.

“The plaintiffs have also filed for recall/variation, challenging the orders of the Delhi High Court in which the administrators were requested to file affidavits of assets. The case is scheduled for hearing on July 13, 2021,” he had declared.

Panna-Mukta (mainly an oil field) and Mid & South Tapti (gas field) are shallow water fields located in the offshore Bombay basin.

Discovered by the state-owned Oil and Natural Gas Corp (ONGC), they were awarded in 1994 to a consortium made up of ONGC (40%), Reliance (30%) and Enron Oil & Gas India Ltd (30%). .

In February 2002, BGEPIL acquired Enron’s 30% interest in the joint venture. BGEPIL was then taken over by Shell.

The Production Sharing Contract (PSC) for the fields stipulated the deduction of costs incurred on field operations from the oil and gas sold before sharing the profits with the government.

Denial of certain elements of the cost would result in increased oil profits for the government.

Reliance and BGEPIL requested an increase in the arbitration cost recovery limit.

Denise W. Whigham