by R. Sasankan

This tale has all the makings of a potboiler in India’s frenzied and volatile world of gas exploration – and it could blow the lid off some tightly-held secrets.

The A.P. Shah Committee is in the process of finalising its recommendations on the issue of gas migration from ONGC’s block, KG-DWN-98/2, in the KG basin to adjacent block, KG-D6, operated by Reliance Industries Ltd (RIL). It will try to provide answers to some troubling questions: was this an instance of natural migration or were devious methods used to steal the gas? If it was an instance of “forced migration”, who all were complicit in allowing the despicable practice to go undetected for years?

Though the basic question before the one-member Committee is perceived to be ONGC’s demand for compensation for the gas “deliberately” sucked out from its block, it cannot do so without addressing a host of related issues that are far more important from the perspective of national interest.

The fact that the Modi government attaches great importance to the issue is clear from the fact that it opted for a one-man committee. The formation of committees, packed with pliant members who invariably know nothing about the subject on which they must express their views, has been the bane of the Indian system. In the present case, there is no scope for a dissenting voice – and that is all to the good.

The ONGC management raised serious charges against the role played by the two regulators, V.K. Sibal and his successor S.K. Srivastava. ONGC’s contention is that gas ‘migration’ would not have happened without the knowledge of these regulators. The compensation question exclusively concerns ONGC but what the Committee has to say about the roles played by these two regulators will have a far-reaching impact on the entire regulatory system in the country.

ONGC’s charge sounds highly defamatory if it is not backed by evidence. Neither Sibal nor Srivastava has responded to the charge. ONGC is India’s blue-chip public sector unit and its management enjoys a special status in the country’s scheme of things. Such a management cannot be expected to make frivolous charges before a man like

Justice A.P. Shah unless it is confident that it has enough evidence to be able to substantiate them.

The regulator’s job is quasi-judicial. True, the Director General of DGH is not an independent regulator but only the head of a technical wing of the Ministry of Petroleum and Natural Gas (MoPNG), which functions as a regulator. The MoPNG has been consistently resisting the idea of an independent regulator as it is reluctant to part with its powers. Even the erstwhile Planning Commission had recommended an independent regulator for the upstream sector.

The original operator of the block KG-DWN-98/2 was Cairn Energy of the UK. ONGC acquired it when it was headed by Subir Raha and struck gas in that block within a year of the much tom-tommed gas discovery in RIL’s block.

 Hydrocarbon reservoirs can extend from one block to the other and this interconnectivity of reservoirs has been noticed in several basins all over the world. It is the primary responsibility of the regulator to identify such possibilities and take corrective actions. When it isn’t immediately noticed, there are several tried and tested mechanisms like the Gas Balancing Agreement to resolve all the knotty issues. ONGC itself had two similar issues in Cambay basins and settled them amicably.

V.K. Sibal was a geophysicist with Oil India Ltd (OIL). He was the one who, in his capacity as the head of DGH, endorsed the gas reserves of KG-D6 around 10.5 TCF. He was denied a tenure extension even though he had not attained the age of superannuation after completing his original five-year term. Production in KG-D6 had not collapsed by that time.

ONGC’s charge is that RIL drilled wells very close to the common boundary in order to suck the gas out from its reservoirs. On the basis of the study conducted by well-known US consultant, DeGolyer and MacNaughton (D&M), it had quantified by the loss at 11.122 billion cubic metres, valued at around Rs 110 billion.

The regulators had in their possession the 3-D survey conducted by RIL in its block. RIL also sought and secured permission to carry out a 3-D survey in the ONGC block as well. Sources say any regulator with average professional knowledge could have noticed the interconnectivity of the reservoir on the basis of these surveys.

It is an acknowledged fact in the E&P industry that positioning of wells can indicate whether the operator is exploiting any possible interconnectivity of the reservoir. RIL claims that it has not violated any provisions of the Production Sharing Contract (PSC). RIL is perfectly right. The PSC does not stipulate where the wells should be positioned. This is for the operator and regulator to decide.

Srivastava was perceived to be a competent geologist. But no sign of competence was visible in the way he handled the issue of production collapse in KG-D6. He appointed a geologist to find out the reasons for that. The geologist came up with an incredible story that RIL was hoarding the gas reserves. ONGC believes that Srivastava knew about the gas flowing into RIL’s block and feigned ignorance.

The entire E&P industry is waiting to know what the Justice Shah Committee has to say about the roles played by the two regulators. If the regulators turn out to be innocent souls, then the ONGC management is guilty of making defamatory charges against them and the Committee cannot be expected to spare the public sector giant.

On the contrary, if it finds that the two regulators had colluded in some way to perpetuate the gas migration saga, they obviously cannot go unpunished. The Committee will not decide on the quantum of punishment but any recommendation it makes will have to be investigated by the agencies like the CBI. Justice A. P Shah has a reputation of being a no-nonsense man.