Govt demands over $30 billion in compensation from Reliance Industries, BP: Report

The Indian government is demanding compensation of more than $30 billion from Reliance Industries and BP, alleging that the two companies failed to produce agreed quantities of gas from offshore fields in the Krishna Godavari Basin. The claim, the largest ever by the Indian government against a company, arises from accusations that mismanagement led to the loss of significant reserves from the D1 and D3 fields.

The dispute is being heard by a court, with proceedings ongoing since 2016. A report in Reuters cited several people familiar with the matter, who said that final arguments concluded on November 7, and a ruling is expected in mid-2026. This outcome will likely be challenged in Indian courts, according to several people. The government insists the shortage is due to a lack of production and operational decisions taken during the project.

The D1 and D3 fields, which were launched as India’s first major deepwater gas project, were initially expected to enhance energy self-sufficiency in the country. However, the project has faced significant production difficulties, including water ingress and tank pressure problems, as well as ongoing disputes over cost recovery. These challenges led to results that fell well short of initial expectations, according to previous public statements from Reliance and the government.

In 2012, the Oil Ministry told parliament that Reliance originally estimated recoverable reserves at 10.3 trillion cubic feet, and later revised that figure to 3.1 trillion cubic feet. Production from fields D1 and D3 ultimately represents only about 20 percent of the original estimate. According to the Oil Ministry, which informed Parliament in a written statement, before work began on the D6 gas fields, Reliance estimated recoverable reserves of D1 and D3 at 10.3 trillion cubic feet before revising that downward to 3.1 trillion cubic feet.

The government claims that Reliance and BP should pay compensation equal to the value of the gas that was not produced, according to two people familiar with the matter. During the arbitration, officials argued that the state owned any gas discovered under the contract, and that mismanagement led to the loss of most reserves. They claim that Reliance used “unduly aggressive” production methods, extracted gas from only 18 wells instead of the 31 originally planned, and lacked adequate infrastructure, which they say caused damage to the reservoir.

Reliance Industries and BP both dispute the government’s claim, asserting that they are not owed any compensation. A Reliance spokesman said the arbitration was confidential and did not comment further.

The gas block, which was awarded in 2000 under a production sharing contract, gave Reliance and its partners the right to recover project costs from oil and gas sales before sharing profits with the government. The state’s initial profit share was 10 per cent, with the potential to increase once costs are recovered, both Reliance and the government have said in previous public statements.

Under the terms of the Contract, all disputes are subject to arbitration by a mutually agreed upon court. Reliance sold a 30 percent stake in the D6 block and other production sharing contracts to BP in 2011 for $7.2 billion.