The Supreme Court on Tuesday continued hearing the long-running dispute arising out of the (Krishna-Godavari) KG-D6 gas migration controversy involving Reliance Industries, BP Exploration and NIKO Resources, with extensive arguments being advanced by Senior advocate Abhishek Manu Singhvi on the nature of Production Sharing Contracts (PSCs), the structure of international commercial arbitration, and the regulatory framework governing offshore gas exploration.

Senior advocate Abhishek Manu Singhvi, appearing in the matter, informed the Bench that the dispute involved an enormous factual and technical record and sought accommodation owing to the complexity of the proceedings and the impending constitution bench matters before the Court. The Bench acknowledged the volume of material involved and indicated that lengthy hearings may be required in the matter.

The case arose from appeals filed by Reliance Industries Limited (RIL) and its consortium partners, UK-based BP Exploration (Alpha) Limited and Canada’s Niko Resources Limited, challenging a Delhi High Court judgment in the Krishna-Godavari (KG)-D6 gas migration dispute.

The dispute pertains to allegations by the Union Government that RIL and its partners extracted and commercially benefited from gas that had allegedly migrated from adjoining ONGC-operated blocks in the KG Basin off the Andhra Pradesh coast. RIL’s KG-D6 block was adjacent to ONGC’s exploration area.

RIL challenged the Delhi High Court Division Bench judgment which overturned a 2023 single-judge ruling that had upheld a 2018 international arbitral award in favour of the RIL-led consortium. The arbitral tribunal had rejected the Centre’s claim and held that the Production Sharing Contract (PSC) did not prohibit contractors from producing gas irrespective of its geological source, so long as the producing wells were located within the contract area allocated to the contractor. The Division Bench of Justices Rekha Palli and Saurabh Banerjee, however, held that the arbitral award was contrary to public policy and accepted the Government’s contention regarding unlawful extraction from ONGC’s adjoining reserves. BP and Niko have also filed separate but connected appeals before the Supreme Court challenging the High Court judgment.

During the hearing before the Bench of Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice Vipul M Pancholi, Mr Singhvi argued that offshore exploration involved “huge risk and huge investment”, emphasising that out of 45 exploration blocks awarded, only one major producing field emerged commercially viable, namely the KG-D6 block. He submitted that over USD 23 billion had been invested across exploration blocks, while several projects failed to yield commercially exploitable reserves.

The submissions extensively dealt with the PSC executed between the Union Government, Reliance Industries and NIKO Resources in April 2000, later amended to include BP. He argued that the contractual framework consistently recognised multiple independent parties with separate participating interests, liabilities and entitlements, thereby supporting the contention that the arbitration retained its international commercial character owing to the participation of foreign entities.

He argued that every operational step, including drilling locations, development plans and expenditure approvals, required prior governmental supervision and approval. He contended that the projects functioned under one of the “most heavily regulated” contractual regimes.

On allegations relating to the alleged migration of gas from adjoining ONGC blocks into the KG-D6 block, he argued that any such migration occurred naturally due to pressure differentials in deep-water reservoirs and could not be characterised as deliberate extraction or “theft”. He submitted that the Government itself remained the ultimate beneficiary through royalty, profit petroleum and taxation irrespective of the source reservoir.

On the economics of the PSC framework, including cost recovery, royalty payments, profit petroleum sharing and pricing controls imposed by the Government, he argued that contractors bore the entire exploration and development risk while the Government incurred no capital expenditure but nevertheless retained substantial financial benefits through royalties and regulated pricing mechanisms.

The hearing remained part-heard and is scheduled to continue further