Reliance Industries (RIL) and its partners BP Exploration and Niko Resources have been hit with a $2.81 billion demand notice from the Indian government, reigniting a long-running dispute over natural gas migration from a state-owned block.

The demand follows a February 14 ruling by the Delhi High Court, which overturned a previous arbitration award in favor of RIL. The government alleges that RIL extracted gas from the adjacent block owned by the Oil and Natural Gas Corporation (ONGC) and sold it without proper compensation.

RIL has maintained its innocence throughout the protracted legal battle, stating that it "does not expect any liability on this account" and plans to challenge the High Court's decision. The company asserts that the demand is "unsustainable" and that it is "legally advised" that it has a strong case.

Background of the Dispute

The dispute dates back to 2013 when ONGC first raised concerns about gas migration from its KG-DWN-98/2 block to RIL's KG-D6 block in the Bay of Bengal. An independent study in 2015 indicated connectivity between the reservoirs, prompting the government to demand $1.55 billion in compensation from RIL in 2016.

RIL contested the claim, and an international arbitration tribunal ruled in its favor in 2018. However, the government continued its pursuit of compensation, leading to the recent Delhi High Court ruling that reversed the arbitration award.

Implications for RIL

While RIL remains confident in its position, the demand notice represents a significant financial overhang. The $2.81 billion represents a substantial sum, even for a conglomerate as large as RIL. The ongoing legal battle could also potentially damage RIL's reputation and create uncertainty for its investors.

Beyond the Gas Dispute

In a separate development, RIL also disclosed that its subsidiary, Reliance New Energy Battery Storage, has been asked to pay liquidated damages by the Ministry of Heavy Industries. This relates to delays in achieving milestones under a performance-linked incentive scheme for advanced chemistry cell battery production.

The Road Ahead

RIL is expected to appeal the Delhi High Court's decision to the Supreme Court of India. The legal battle could continue for several more years, with no clear outcome in sight. The case highlights the complexities of resource extraction and the challenges of resolving disputes in the energy sector.

These developments come at a crucial time for RIL as it seeks to diversify its business portfolio and expand into new energy sectors. The company will need to navigate these challenges effectively to maintain its growth trajectory and investor confidence.