hardy exploration and production (india), inc v government of india, ministry of petroleum and...

7/25/2019 Hardy Exploration and Production (India), Inc v Government of India, Ministry of Petroleum and Natural Gas

1/44

Exhibit 1

Case 1:16-cv-00140-RC Document 1-3 Filed 01/28/16 Page 1 of 44


2/44

BEFORE

TH

ARBITRAL TRJBUNAL COMPRISING

JusticeS. P. BHARUCHA

Fonner Chief Justice of Supreme Court of India

Presiding Arbitrator

Justice G. B. PATNAJK

Former Chief Justice

of

Supreme Court of India

Co Arbitrator

Justice V. N. KHARE

Former Chief Justice

of

Supreme Court

of

India

Co Arbitrator

n the Matter

of

Arbitration Dispute between:

M

/s

Har

dy Explo

ration Production (India) Inc.

Yt:r:;us

Government

oflndia

Mi ni stry of Petroleum

Natural Gas

W RD

Claimant

Respondent

Oi l and Gas form very important natural resources of any country. t plays

an important role in the economy of the country. Oil and Gas is a critical economic

sector. given the close co-relation between economic growth

and

consumption or

petro leum and gas. Mindful

of

this,

th

e

Gove

rnment

ha

s undertaken measures

to

attract private investments. India is the 4

largest oil and gas consumer in the

world after USA, China and Japan, but is heavily dependent

on

imports to meet its

energy requirements. Therefore. discovery of oil and gas in the country is

or

paramount importance.

To

step up efforts

at

exp loration, the countTy switched to

the exploration licensing policy. The policy has proved successful in allracting

private investments.

The exp

loration

or gas and

oil operate a combination of

cquipments

and

conditions not seen in

other

industry. is undoubtedly a very

risky

and

highly expensive business.

Those

who indulge in the business or

exp

loration, spend huge sum of money not being sure of

the

result or such

exploration.

The

greatest challenge in such exploration is to develop and execute

the project

on schedule and within budget while facing challenging c riteria and



3/44

2

specifications. Local explorers need global partners who can work with them in

n

ew

geography markets and coordinate the overall delivery of project. With

increasing investment in energy markets and new geographies coupled with new

infrastructure

in

emerging markets. engineering pr

oc

urements and construction

players n

ee

d to be able to deliver a global service. India is not that

ri

ch

in

oil

r

esou

rces

as co

mpared to Middle East countries. Experience has sh

ow

n th

at

even

discoveries which had shown great potentiality were nothing but a bubble to bur

st

within a couple of years of production. Therefore the euphoria over gas and oi l

discovery fades

in

no lime. Having regard to financial involvement in

exp

loration

of gas and oil and having regard to the chances of such discoveries quite minimal.

Government of India allows exploration of gas and oil to private operators by

entering into Production Sharing Contract and in such contracts the explorer

in

vests

money with the hope th

at

he will be able to discover gas or oil in the well and if

such discovery is established to be commercial ly viable then the discoverer gels

right

or

ge tting a share

of

the project.

ln the present dispute between lardy Exploration and Production (ndia)

Inc. and Government of India, Ministry of

Pe

troleum Nat ural Gas. a Production

Sharing Contract had been entered into bet

ween

the President

of

India. acting

through Joint Secretary, Ministry of Petroleum and Nat

ur

al Gas. and Oil and

Natural Gas Corporation Limited (ONGC) and Vaalco Energy Inc; a company

established under the laws of United States ofAmerica (VAALCO): Hindusta n Oil

Exploration Company Limited, a company established under the laws

of

ndia

(HOTC ) and Tata Petrodyne Ltd., a company established under the laws

of

India

(TPL) on 9

'h

November,

1996

in respect

of

the contract area identified as Block

CY

OS

/2

. Article 28

of

the said agreement provides for ass ignment

of

interest.

The

contract area was 5010 Sq . Kilometers. On

30

March 2000 an addendum to the

Production Sharing

Co

ntra

ct

was added recording amendment and modifications to

the Production Sharing Contract. By virtue o f assignment in ravour of Hardy

Exploration & Production (India) Inc., the said company got

25

participating

imerest out

of

30 panicipating interest held by

Vaall:u.

Article 7.3

of

the

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4/44

Original Production Sharing Contract was thus substituted accordingly. The 2 d

addendum to the Production Sharing Contract was made

on

17

1

h August, 200

I,

by

which HOEC,

TPL

and MIL surrendered their respective participating interest in

the Production Sharing Contract and HEPI expressed its desire to

assume

the

entire

I00 participating interest in the contract area. The said H EPI assigned 25

interest in favour

of

Gas

Authority

of

India

(GA

IL

) and for th

at

purpose an

amendment to

the

Production Sharing Contract was entered into

on

27'

March,

20

03 after obtaining

th

e

app

roval

of th

e Government

of

India, Ministry

of

Petroleum &

Nat

ural

Gas

by their letter dated

29

October, 2002. Thus the revised

participating interest in the contract area was HEPI:

75

and GAIL: 25 . Be

it

mentioned that though

ONGC

is a party to th e Production Shari11g Contract right

from

the

inception, but it never had

any

participating interest

dur

ing

exp

loration

though it reserved its right to be exercised after the discovery becomes

commercially viable in accordance with the provisions of the Production Sharing

Contract. The 4

1

h amendment to the Production Sharing Contract was executed on

3'd February, 2006 by which the contractor relinquished and surrendered all areas

granted to it originally except

859

sq . Kilometers as delineated in document

annexed to the said amendm

ent

and the 3'd

exp

loration ph

ase

was allowed up to

23'd

of

March, 2007. Thus,

at

present the Claimant HEPI is the

75

participating

interest

ho

lder

and

the contract area is reduced to 859 Sq. Kilometers

of

the Block

CY/OS/2 as against the original contract area of 50 I0 Sq. K ilometers.

On

the basis

of

geological and geophysical data and on

the

basis

of

reports

of tl1e

experts

as

well as

on

the com prehensive analysis studies carried

out

by

Amigos, the Clai

ma

nt indicated to the Respondent iliat they ha

ve

been

ab

le to

discover gas

called

NANG

and therefore would be entitled to a higher period for

continuing exploration to find out whether the said discovery is commercially

viable or not. Respondent,

how

ever, c ame to

the

conclusi

on

that the discovery in

question is oil and consequently in terms of the provisions of Production Sharing

Co

ntract the contractor would

be en

titled to a peri

od

of

24

months for completion

of appraisal to es t

ab

lish whether it is commercially viable or not as provided under

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5/44

4

Article 9.5 of the Production Shruing

Co

ntract. The Respondent issued a letter on

23rd

March, 2009 stating therein that the Block in question stood relinquished.

There has been subsequent

co

rrespondence between the parties, which wi ll

be

narrated later while indicating the case of the claimant in detail. The Claimant had

approached the Ministty of Oil and Petroleum Natural Gas. but when the

Government in the Ministry of Petroleum

Nat

ural Gas rejected the prayer

of

the

Claimant and affirmed relying upon the views

of

Director General of Hydro

Carbon that the discovery made was of crude oil, the Claimant issued a

legal notice on 30'

April, 2010 calling upon for expeditious resolution

of

differences failing which the Claimant would

re

sort

to

arbitration

as

provided under

Article 33 of Production Sharing Contract. When no such re

so

lution result was

possible, the Claimant inv

oke

d the Arbitration Clause and nominated

Hon ble

Mr.

Justice V. N. Khare, Former

Chief

Justice

of Sup

reme Court of India as their

Arbitrator.

The Government

of

India nominated Hon ' ble Mr. Justice G. B.

Patnaik, former

Chief

Justice

of

Supr

eme

Court of India on behalf of

th

e

Government

and

both the Arbitrat

ors

requested Hon

bl

e Mr. JusticeS. P. Bharucha.

Former C

hief

Justice of Supreme of India to act as the Presiding Arbitrator. The

Tribunal was

duly

constituted and first meeting for preliminary direction was held

on

27

August,

20

10 at

New

Delhi. TI1ereafter parties

fil

ed their respective

pleadings and

document

s in support

of

their re

spect

ive case

wh

ere upon i

ss

u

es

for

determination were framed

on

17.02.20 I I. On the request of the

Respo

ndent the

first two issu

es

were heard as prel iminary issues and were disposed

of

in favour

of

the Claimant against the Respondent by detailed order dated

28'

Ma

y,

20 II.

Subsequent to the said order, the Claimant was allowed to lead evidence and the

Ex

amination

Chief

was filed

by way of

Affidavits. and the deponents were cross

ex a

mined by the Respondent's Counsel. Then the Respondent was also allowed to

file their Affidavit Evidences and

the

deponent was cross examined

by

the

Claimant's Counsel. Finally, arguments were heard at Kuala Lumpur

on 20

21

and 22 d or August, 20 12 and

on

conclusion of

the

arguments the matter was

reserved for passing

of

award.

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6/44

t may be stated that ONOC and GA IL agreed and resolved by Resolution

da ted 17' May, 2010 stating therein that they have

no

objection to operator, Hardy

Explorati

on

& Production (lndia) Inc. (HEPI) to refer the dispute for arbitration and

to decide on the appointment of Arbitrato rs and counsels for the dispute and will be

bound by the decision of the Arbitral Tribunal and this resolution was signed by

representatives

ofONOC,

GAIL and Hardy.

The

case of

the Claimant in nut shell is that

it

is a company exi

st

ing under

the laws of State of Delaware, United States of America, having its project office in

Chennai and the company is involved in exploration and production of oil and gas.

The said company is

the

party to the Production Sharing Contract

exec

uted with the

Government of India for exploration in block CY-OS/2. The Respondent, Ministry

of Petroleum and Natural Gas is a party to the Production Sharing Contract. The

Director General of Hydrocarbons DOH) is under tbe administrative control of the

Ministry of Petroleum & Natural Gas and was entrusted with responsibility of

implementation

of

the

New

Exp loration Licensing Policy (NELP), monitoring the

Production Sharing Contracts for exploration and development of blocks awarded

by Government of India and promotion of investments in the hydrocarbon sector in

India.

The

gravamen of he Claimant's case before the Tribunal is that the Director

General of Hydrocarbons without any authority under the Production Sharing

Contract relinquished the Block CY OS/2 by erroneously characterizing the nature

of

discovery as oil instead

of

Non Associated Natural

Gas

(NANG). According to

the

Claimant even the view

of ONGC

who is

the

Licensee has not been taken into

account and the Respondent, by applying wrong provisions of PSC. declar

ed

relinquishment

of

the

exploration Block prior to the

due

date

of

declaring

commerciality. On the application of the Claimant, though the

Government

initially was in favour

of

reviewing its decision, it finally chose to reject

the

stand

of the Claimant solely on the ground that the DGI-1 being the Technical Advisory

r r t lnet1

tt

rue

o

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7/44

Body

of th

e Ministry, it wou

ld

not

be

appropriate to over-rule it but to go by its

advice.

On

th

e date

of

filing

of

Claim Petition before the Tribunal the Contractors

for

the purpose

of

exploration were GAIL and the Claimant a

nd

the ONGC was

Licensee

of

he Block. As has been stated earlier, the Claimant

obtai1

1ed the entire

I00% partic

ip

ating interest by way

of

assignment

in

its favour on 17

August, 200I

a

nd

thereafter assigned 25%

of

its participating interest

of

the

Bl

ock to GAIL on I

1

of January, 2002. Under the Production Sharing Contract though ONGC is also a

Contractor, but being Licensee even though it does not have any participating

interest, it is entitled to exercise its option of 30% pa1ticipating interest

on

success ful exploration during development and production without any payment

towards explorat

ion

cost.

The case

of

the Claimant further is that both the Claimant a

nd

GAIL drilled

exploration well

in

accordance with the programme during Phase-

II

exploration but

that exploration was not successful. Thereupon, they entered into Phase-m of

ex

pl

oration by digging 2 more exploration we

ll

s and by applying 350 Kilometers of

addition 2 D seismic data as per addendum No.4 which was signed by the

Governm ent of India on 3'd february, 2006 and the ex

pl

oration period was val id till

23'd March, 2007. According to the Claimant, they successfully compl eted the

programme before the due date. During the sa

id

exploration or Phase-Ill, it is

stated that though the first well was a dry-hole, the second we

ll

FAN -A- I was

drilled to a depth

of

4089 meters and it produced appreciable quantity

of

hydrocarbons

in

the form

of

Non-Associated Natural Gas (NANG). and

it

is

apparent

fr

om the production test. The test is called a Drill Stem Test (DST) and

had been carried out

by

Schlumberge r Asia Services Limited (Schlumbergcr). one

of

the world

s

largest oil field service providers. The tests were conducted in the

exploration we

ll

fro

m 24

December, 2006 to 15

1

January, 2007 and the Claimant

received reports

on

2ls

1

and

22 d

January, 2007. Based on the test results, though

the discovery was hydrocarbons, the same ch ristened as Ganesha-1 and this was



8/44

z

< JJ

;

communicated to the Ministry of Petroleum and Natural Gas as wel l as Director

Genera

l Hydrocarbons on gth of January. 2007 in f-ormat-A prescribed

by

the

Government for the purpose, in terms

of

Article 9 1 (a)

of

Production Sharing

Contract.

Thereafter in accordance with Article

9.1

(b)

of

the contract, the details

of

the

tests were submitted on 6th February, 2007. which indicated all that flowed was

predominantly gas along with litt le condensate. On 19

February. 2007,

DGH

requested the Claimant to furnish the details in the fom1at

- 8

in terms of Article

9 1 (c)

of

the contract and these details in format-B were filed by the Claimant on

gth

March, 2007, copy

of

which is exhibit-S. According to the Claiman t, the nature

of discovery as hydrocarbons is significant under the contract for the purpose of

dete

rmining the time limit for discovery

of

commerciality.

t

is also stated that

und

er

the Production Sharing Contract discovery can be termed to be oi l or gas

depending upon the predominance

of

the oi l or gas therein and necessarily

the refore a discovery would be NANG even

if it

is associated with sma

ll

quantity of condensate or oil. S ince the gas discovery is more difficult to put on

commercial stream and takes longer time than an oil discovery, the contract it

self

allows

longer time frame in case

of

discovery being NANG.

The contract provides th

at

exploration resul ting in hydrocarbons discovery

needs to be appraised by further geological, geophysical, reservoir and such

drillings

of

appraisal well have to be pursued in order to determine that the

discovery is

of

commercial interest

or

not. Though

the

Claimant submitted

appraisal programme to DGH on 21 t March, 2007, but later on certain changes

were made in the said appraisal programme, which was also submitted to Director

General

of

Hydmcarbons. Management

Comm

ittee which is constituted under

Article 5.1 and which consists

of

nominees

of

the Government

of

India. the

Contractors and the Licensee passed a resolution calling upon the Claimant to

continue the appraisal programme for 4 months and on certain terms as would

appear from the Management Committee resolution dated

20t

July, 2007. which is



9/44

exhibit 14 Further case of the Claimant is that the Claimant and GAIL spent

substan,tial funds to carry out the aforesaid appraisal programme by engaging

experts and were submitting reports to the Director General of Hydrocarbons on

28

of July, 2008 and on a telephonic conversation it was stated that the appraisal

should be completed by 7

of January, 2009. Thereaft er the DOH, relying upon

Article 9.5

of

Production Sharing Contract, determined that it must .

be

established

that the discovery is a commercial discovery by 07.01.2009. The Claimant

however continued the appraisal programme with a comprehensive analysis of data

by Amigos Energy Advisors, Dallas (Amigos) a leading geo-technical advisory

group specialized in interpretation of geological and geophysical data. estimation

reserves and evaluation

of

prospects. According to the Claimant, the work was

carried

out

by integrating the work done by various geoscientists from M/s

Knowledge Reservoir (U.K.) Ltd., COG Veritas

e

rvices and the in-house

scientists

of

the Claimant. In fact Amigos identified two areas in 'Gancsha-1'

discovery and it confi rm ed that the sands are gas bearing as well

as

prospect of

econom

ic

evaluation should be made on the basis

of

gas volume and this report was

submitted by Amigos on 28

August, 2008, which is exhibit 16. Having realized

that potential

of

the Block was low, it was decided to drill 3 other farm wells and

the appraisal programme relating to drilling was sent to the Operating Committee

Meeting held on l2'h

of

August, 2008 in which ONGC was also represented.

The

review

of

the programme was communicated to DOH on 3th August, 2008 with a

request to call for a meeting of the Management Committee to review the revised

appraisal programme. It is the case of the Claimant that DOH officials visited the

Claimant's office on 6' and 7

1

eptember. 2008 and reviewed all the Technical

Rep011s and geological and geophysical data more particu larly the Amigos Report.

A meeting

of

the Managing Committee was convened on 8

October. 2008 and the

revi sion of the appraisal drilling programme was reviewed

in

the sa

id

meeting.

Ministry of Oil and Petroleum Gas also participated and discussed more

particularly pertaining to the extension of the period required for appraisal to

determine the commerciality. The Claimant on the basis of work carried out till

then as well

as

the minimum time required to complete the appraisal of discovery



10/44

9

submitted that

at

least 30 months from the date

of

original discovery should be

granted and it was agreed that the Claimant would make an application for

favourable consideration by the Government

of

India.

This

was also noted by the

Management Conunittee in its minutes, which is exhibit 18. The Claimant then

sent a Jetter dated 9th October, 2008 seeking extension

of

time for completion

of

appraisal and also stated that the commerciality has to

be

declared in accordance

with Article

2

1.

4.4

of Production Sharing Contract by th January.

2012.

inasmuch

as

the discovery made is NAAG and the contractor is entitled to a period

or

60

months for declaring commerciality. The said letter of the Claimant to the

Ministry of Petroleum and

Gas

is exhibit 19.

The

DGH

by

letter dated 24th October, 2008 intimated that the proposal was

being examined and also

so

ught for further detailed information like a

DST

results

in detail b Oil Gas analysis report and c Core analysis report. All these reports

and information were sent by

the

Claimant on the very same date. A meeting of

the Operating Committee was held on

6th

November, 2008 and the Operating

Committee also considered that the discovery made was gas. Minutes of the

meeting dated 6thNovember, 2008 is exhibit 22.

On J d

December, 2008 the Director General Hydrocarbons sent a letter to

the Ministry of Oil and Natural Gas stating that the well flowed gas at

74000

em/day with a condensate

of

20-30 bbls per day with negligible water. This letter

also stated rationale for 30 months extension as provided under Arti

cle

2. 9 of PSC.

The Claimant thereafter made several representat ions on 6th November,

2008; 31

t

December, 2008 and 23 d February, 2009 to the

Minisoy

to approve extension in

terms of PSC as applicable for discovery of NAAG. But without considering the

relevant facts pertaining to the nature of discovery and

the

appraisal thereon, the

DGH unilaterally declared discovery to be crude oil and issued a letter on 20th

February. 2009 followed by letter dated 23 d March, 2009 that the block stood

relinquished. After issuance

ortetter

of relinquishment, a letter was al

so

sent to the

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11/44

1

Ministry on 26th March, 2009

to

substantiate the order of relinquishmen t, exhibit:

29.

The Claimant thereafter

obta

ined two independent technical opini

ons

from

the Indian School of Mines (ISM) Dhanbad as we

ll as

Gaffney C

li

ne Associates.

UK

,

which

are internationally reputed technical

and

ma

nagem

ent

advisors to

t

he

Pet

roleum i11dustry on IS' June, 2009 and

25

June, 2009, both

of them op

ined

th

at

discovery was in fact is gas and is NANG. These opi nions are exhibit 30 and

31. The Claimant then received a letter from DGH dated 4' Jul y,

2009

slat i

ng

the

re in that discovery

made

by the Claimant is in nature

of

oil and therefore t

he

d

eclara

tion

of

commerciality is required to be made by 7 January,

2009

as per

Article 9.5 of

the

Production Sharing Contract. The Claimant

di

d not

agree

to t

he

aforesaid views

of

Director General Hydrocarbons and reiterated thai the discovery

made

is NANG and its commerciality could be made by 7

January,

20

12. This

letter

of

the Cl aim

ant

is exhibit 33. According to the Claimant

in

fact Director

General

of

Hydrocarbons

in

its r

eport

to the Ministry for the year 2006

and

2007

treated discovery as gas discovery and on the web s

it

e also stated

the

disco

ve

ry to

be gas

ru d

when this was pointed out to the Ministry,

it

was indicated

by

DGH

tha

t there was an e rr

or

in the web s

it

e while loading

the

data.

The Claimant then made further representations

on

several dates to the

Ministry

as we

ll

as

to the Director

Ge

neral of

H y d r u ~ : a r b u u s

indicating the

inaccurate positi

on

adopted by

the

Director General of Hydrocarbons. Ministry

then ca

ll

ed a mee ting on 13' November,

2009

to h

ear

the party and in that meeting

the C laimant indicated

the

basis for characte

ri

zing discovery

as NANG

and t

he

details

of the

appraisal

carri

ed

out

till then were produced. But unfortunate ly the

Director

Ge

n

era

l

of

Hydrocarbons refused

to par

tic

ip

ate in

any me

aningfu l

techni

ca

l discussion a t the m

eet

ing and

cont

inu

ed

to

adopt

it

s incorrect

po s

iti

on

that

the

di

scove

ry was of

crude

oil. Ministry then by letter dated I5 December. 2009

aske

d

the

Director General

of

Hydrocarbons to commen t

on

the feasible solution to

resoive the difference of op inion about the nature of discovery and called upon

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12/44

11

DGH to forward the comments by I8'

11

December, 2009. But the DGH never

called the Claimant for any further discussions and on the other hand replied to the

Ministry that the Block stood relinquished with effect from 7

11

January, 2009 as

declruation

of

commerciality under Article 9.5

of

the PSC was not made by

7'"

.January, 2009. Copy

of

the said letter is exhibit 46.

The Claimant further states that the Ministry issued letter to the DGH on

2 1

51

Januruy,

20

10 wherein it referred to the review meetings between the DGH and

Ministry where the representation of the

Cla

imant as well as the clarification by

DGH were considered. Thereafter

to

examine the case in its proper perspective

flll1her clarifications were required. The Ministry also called upon the DGl-1 to

verify the records and confLrm whether the details submitted by the Claimant

qualifies for consideration as discovery to have been

subm

itted in format A B

were available and on the basis of hose details whether the Claimant is entitled for

consideration as discovery in

terms

of

Art

icle 1.34 of PSC. The Claimant then

sent a detailed reply on

22"d

January, 2010 to the Ministry and further letter to

DGI-l

on 25

111

January,

20

I0 clearly pointing out the discovery being NANG, in

view of the fact that the measurable flow was only for gas and not for any other

liquid. The Claimant also referred to Amigos report. The DOH also sent its reply

to the Ministry on 8th Februruy, 2010 confirming that the data in respect or drill

stem tests as stated by the Claimant was correct. It also furnished a copy of the

Amigos report, but opined that the samples obtained from

DST

-1 and DST-2 from

the well in block CY-OS/2 indicates condensate. Thereafter representative of

DGH called upon the Claimant for further discussions

on

6

111

April, 2010 where the

Claimant reiterated various geo logical and geophysical study carried in course

of

appraisal programme and stated that the comprehens ive study carried out by

Am igos has already been submitted to DGH.

On 15.4.2010 Ministry of Petroleum and Natural Gas addressed a letter to

DGH copy of which was endorsed to the Claimant and GAIL stating therein that

th( request for extension stands rejected based on the opinion

of

DOH that the

r t ~ t 1 tl l . . . Trv.., C

o

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13/44

12

discovery made in the block was crude oil.

It is rather interesting to note that on

the sa

me

date the Claimant received a Jetter from DGH stating therein

ce

rtain

additional information which were required to assess

th

e nature and potential

of th

e

discovery. Sin

ce

the Ministry and

DGH

persisted with their vi

ews

that the

discovery is oi l and not gas, legal notice was issued

on

30.04.20 I 0 and finally

Claimant took recourse to arbitration as pr

ov

ided under Artic le 33 and on

cons

titution

of

the Tribunal

fi

l

ed the

Statement

of

Claim.

In

the

Claim

Petition the

Cl

aima

nt a l

so sta

ted that by filing application under Right to Information

Act

the

Claimant obtained the file notes

\IVit

h respect to the sub

ject

matter

and

the relevant

documents and notings had been filed before this Tribuna

l

t is

ave

rr

ed

by the

Cla imant that the Claimant and GATL as on 31.3.2010 had spent about 500 crorcs

and

financial statement for the period was filed

as

exh ibit 47.

In the

S

ta t

ement

of

C laim

the Cla

im

ant

made the

fol

l

owing

prayers:

a) Declare that the discovery made by the Claimant and

GAIL

is NANG' .

b) Declare

that

the relinquishment

of

the Block by

MOP NG

is arbitrary,

i

ll

egal and contrary to the terms of the P

SC

and therefore set it aside as

null and void.

c)

Pass an order to gra

nt

extension

of

the

PSC

for a period

of

5 years from

the date

of

arbitral

awa

rd to complete the pending appraisal

wo

rk and to

declare commerciality by such extended time in

te

r

ms

of

he

PSC.

d) Award the financial costs suffered by the Claimant of Rs. l22.50 crores

as on date

of

filing this claim and further

cos

ts

on

the

sa

me basis till the

date

of

award and

ti ll

payment in terms thereof.

c) Award costs of the arbitral proceedings including legal costs in favour

of he

Cla

imant



14/44

13

f

Pass such further orders as the Hon'ble Tribunal may deem fit and

pr

oper in the facts and circumstances

of

the case.

The

Respondent filed its reply to the Statement

of

Claim by contending that

the prayer for declaration cannot be allowed for exa mination by the T ribunaL as it

is outside the purview

of

the Producti

on

Sharing Contract.

t

further stated that the

prayers (b) (c) being related to prayer (a) the same cannot be gra

nt

ed.

s

has

been stated

ea

rlier, on the basis

of

th is asserti

on of

Respondent in its reply, two

Issues No.I 2 were heard as preliminary issues and disposed

of

by Order

of

the

Tribunal dated 28.05.2011 .

The

positive stand

of

the Respondent

in

the reply filed to the Statement

of

C laim is that the

Co

ntractor failed to adhere to the terms

of

the Production Sharing

Co

ntract. In order to give coverage to the non-performance

of

the terms as well as

breach in performance of the terms, the contractor pleaded that the discovery was

NANG. This was not only

f a l ~ e

but unfounded. After referr

in

g to different

clauses

of

the

Co

ntract, the Respondent took

the

stand th

at

in accordance with

Article 9.5

of

the P

SC

the contractor is requir

ed to

adv ise the Managing

Comm

ittee

by notice in writing that su

ch

discovery is commercial within 24 months

of

the

original date

of

discovery and that not having been done, the contractor has no

ri

ght

to get any reli

ef

by this Tribuna

l. t

further p leaded that sin

ce

the contr

ac

t

or

fail

ed

to declare commerciality

of

the production by 7.

1.

2009, the block stands

relinquished. It is stated in the Statement

of

D

efe

nse th

at

mere stating or referring

to opinions

or

expert's reports that discovery is hydrocarbo

ns

, the discovery cannot

become NANG. According to the Respondent the scientific chemical analysis

r

epo

rt submitted by the Claimant confirms that the discovery is oil and

gas

and

therefore its commercial discovery was to be made by 7.1.2009 and the same not

having been done, block in question was

re l

inquished. In paragraph 3

of

the

Statement of Defen

se

while denying that the discovery in q uestion has been

wro

ng

ly characterized

as

oil

by

the Respondent

in

stead

of N NG

and whi le

denying the fact that the Respondent failed to appreciate the technical reports and

C.rtl .l1 '

b . True

o . . ,

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15/44

4

views of ONGC, the Respondent asserted that the Ministry rightly was guided by

the advice of its technical advisory body, namely i rector General or Hydrocarbons

and ultimately came to the conclusion that what had been discovered was oil

and not gas. According to the Respondent the discovery having been confim1ed as

oil the question of applicabi lity of Article

21 4 4

does not arise and that discovery

can

n

ot be

held to be discovery

of

NANG

merely on production

of

report

of

experts.

The Respondent also submitted that obtaining technical opinion from Indian School

of

Mines, Dhanbad and Gaffney Cline Associate

of

U.K. do not improve upon the

case of the Claimant on verge of relinquishment. The Claimant s view that the

discovery is NANG is far tiom reality., On the question of indicating in the web

site of DGH that the discovery is gas, it is stated that the said indication was of

tentative nature purely on the performance report submitted by the Claimant and

can

not be held to be a detem1inative factor to treat the discovery

as

gas.

The

other

assertion of the Claimant in the Claim Petition was denied. Finally, the

Respondent submitted that the Respondent having consid(; red the germ ane material

and having come to the conclusion that the discovery is crude oil and gas and the

Claimant not having carried out any further appraisal to indicate commerciality

of

the sa id oil, the same stood relinquished.

t

is also stated that the question whether

the discovery is gas or oil is a highly technical matter and the Director General of

H y d r o c ~ r b o n s

being constituted to advise the Ministry on all these technical issues,

Ministry rightly thought it appropriate to go by the said advice and therefore even

though in the file at lower position somebody might have noted the discovery to be

gas, it would be of no consequence. The Respondent ult imately prayed for

dismissal

of

the Claim with award

of

compensatory

cost in

favour

of

the

Respondent.

The Respondent also filed a supplementary written statement indicating

therein since the Production Sharing Contract itself came to an end by terms of

contract, the Cla im Petition is not maintainable . It flllther stated that the Claimalll

has failed to use in-built machinery provided under the contract to seck declaration

regarding discovery as

NANG from the Management Committee and the Tribunal

e,..,..,

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Tru '

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rt......,.

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: : t - . c t t .

.tth

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-

...

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.......

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16/44

5

is not entitled to make that declaration. According to the Respondent the in-built

mechanism provided under A icle 5 and 9 fo r seeking declaration regarding

classificat ion

of

production can only be adhered to and such declaration can be

given by the Management Committee. It was reiterated that save and except

declaration contained in Formant A and Fo rmant B, there was no further

development on the field

of

the product to be termed as commercial discovery and

since the Cla imant failed to ente11ain appraisal of well in terms

of

review granted

by MC on 8

October, 2008 and failed to d

ec

lare discovery to be commercial

discovery, the Respondent took recourse to the provisions of the contract and

communicated the order

of

relinquishment essentially on the ground that by effl ux

of time and non-pe rformance of the contract by the C laimant it stands relinquished.

According to the Respondent the Claimant is not entitled to approach the Tribunal

for declaration that the discovery is NANG without previous recourse to the

Management Committee.

On the notings

of

the file of the Ministry the

Respondent states that such corresponden

ce

cannot be termed as admission on the

part of the Respondent. On the question

of

claim of compensation, the Respondent

states that right

of

the Claimant can only be decided within the parameter

of

Production Sharing Contract and the sa id PSC not having provided any right for

compensation in terms

of

money, but have only a right to Production Sharing post

commercial discovery, question

of

grant

of

compensation does not arise.

The Claimant did file a rejoinder affidavit replying to the stand

of

the

Respondent. On conclusion

of

pleadings, fo llowing issues were framed:

I. Whether the PSC does not cover di

sp

utes regarding exp loration alone?

2. Whether the disputes raised in the statement of claim are excepted

matters and therefore outside the jurisdiction

of

the Arbitral Tribunal?

3. Does the nature

of

the discovery in the block CY-OS

/2

quali fy under the

terms of the Production Sharing Contract ( PSC ) as Non-Associated

Natural Gas ( NANG )?

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17/44

6

4.

Is the claimant entitled to the time period under article

21.4.4 of h

e PSC

for declaring commerciality of such discovery under the PSC?

5. a) Is the Claimant entitled to the time period under article 2 1.4.4 of the

PSC for declaring the appraisal work programm

e?

b)

If

so , was the same wrongfully denied by the Res pondent?

6. Was the decision of

the

Respondent in relinquishing the block CY-

OS/2, solely in terms of Article 9.5 of the PSC, in accordan

ce

with the

terms of he PSC?

7. Is the Claimant en tit led

to

any compensation?

8. To

what

relief is the Claimant entitled to?

9. Is the Claimant entitled lo costs?

As

has been stated earlier, the first two i

ss

ues have already been disposed

of

by Order dated 28'

11

May , 20

II

and it was held that the Arbitral Tribunal has the

jurisdiction to decide the dispute whether the discovery .made by the Claimant is

NANG, as claimed by the Claimant, or oil, as claimed by the Respondent. Out of

the rest of issues, t

he

important issues are Issue 3 and 4. But before considering

the

issues on the basis

of

materia ls produced be fore this Tribunal and

U1c

arguments

advanced by Learned

Co u

nsel for the parties, it would be appropriate to quote

certain pr

ov

is ions of the contract in extenso:

1.5 Appraisal Programme means a programme, carried out following any

Discovery

of

Petroleum in the Contract Area for the purpose

of

de

lineating (l

ie

Petroleum Reservoirs to which

th

e Discovery relates in

terms of thickness and lateral extent and determining the

characteristics thereof and the quantity

of

recoverable Petroleum

the rein.

1.6 Appraisal Well

means

a Well drilled

pursuant

to an App raisal

programme.

1.9. Associated Natural

Gas or

ANG means Natural

Gas

occu rring

,.,.., e ? ' True c

..

e

udfcffltr

Oc

n ,.trn .

h

. tt'l r

ut o f pl l l

u h

o

. .

... u U


18/44

17

m association with Crude Oil either as free

gas or

m solution. if

Cr

ude Oil can in itself be commercially produced.

1.15. Commercial Discovery means a Discovery

of

Petroleum reserves

which, has been dedan::u a C o m r n ~ : : r c i a l Discovery in accordan

ce

with

the provisions

of

Article 9 and 2

J.

1.34. Discovery means the finding of a deposit or Petroleum not

previously kn

own

to

have

ex i

sted,

which can

be recovered

at

the surface in a flow measurable by

conven

ti

ona

l petroleum

industry testing methods.

1.40. Ex ploration

Operat

ions

means

operations conducted in the

Contract Area pursuant

to

this Co

n

tract

in

searching

for

Petroleum

and in the co urse

of

an Appraisal Programme and shall

include but not be limited to aerial, geologica l, geophys ical.

geochemical, palaeontological. palynological. t

opographical

and

se ismic

surveys,

analys is. stud ies

and

their

int

e

rpretation,

investiga tions relating

to

t he subsurface geology including

st ruc

tu

re test ' dri lling, stratigraphic test drilling, drilling of

Exp

lorati

on

We

ll

s

and

Appraisal Wells and

other

related

ac

t

viti

es

such as survey ing, drill site preparation and a ll work necessarily

co nnected therewith that is conducted in connection with Petroleum

explo

ration.

1.41.

Explo

ration Period

means

the period during which Exploration

Op erations may be carried out by the Contractor as provided in

Article 2 hereof.

1.42. Exploration Well

means

a We ll dril led for the

purpose

o

search ing for

undiscovered Petroleum

accumulations

on any

geo logical

entity

(be it of structural, stratigraphic,

facies

or

Crtlf lt1 .

r

u o Y

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19/44

18

pressure nature) to at least a depth

o

st r

at

igraph ic level

s pecifi ed in the Work Programme.

1.58.

Non Associated Natura l Gas or NANG

means

Na tur

al

Gas

which is produ ced e

ith

e r

without

assoc

iation

w

ith

Cr

ud

e Oi l or

in

assoc iation w i th Crude Oi l whic h by

it

se lf cann

ot

be

com

m erc ially

produced.

1.59. Oil

means

Crude Oil .

5.

5.

The

following matters shall be submitted to the Management

Co m m ittee for approval :

a. ann

ual

Work Programmes and

budgets and

any

modifications

or

revisions thereto, as proposed by the Ope ra ting Commi ttee. fo

Dev

e

lopment

Op

erati

ons

and Production

Ope

rations:

b.

proposals

for

the

declaration of a Discovery as a Commercial

Di

scove

ry

and

the

ap proval

of

Development

Pl

ans as

may

be

requi

red

under this

Contract, or revisions or additions to a Development

Plan:

c. boundaries of a Development

Area

including

any

modifications

thereof;

d. appointment

of

aud itors;

e. co ll

abora

ti on with licensees or contractors

of

ot

h

er

areas;

f. claims

or set

tlement

of

claims for

or

on behalfof or against the Contractor

in

excess

of

limits

spec

ified in the Op erating.

Agreement

or fixed

by the

Management Commitlee from lime to lime whichever is higher;

g.

any

other matter required by the tenns oft hi s contract to

be

submitted for

~

emlner J o o ~ l e l l Oena .

#

..

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..... fu r ~ f l o n t

~ ~



20/44

lhe approval of he Management Committee:

h. any other matter which the Contractor or lhe

Ope

r

atin

g Committee

decides to submit to it.

9.1 If and when a Discovery is made within the Contract Area. the

Contractor sha

ll

:

a. forthwith inform the Management Committee

of

such

Di

scovery :

b. promptly thereafter,

but

in no event later than a

per

i

od

of thirty (30)

days from the date of such Discovery, furnish to the Manag

eme

nt

Co

mmittee particulars

in

writ

in

g, of such Discovery;

c.

prompt

ly run tests to

determine

w

hether

s

uch

Discovery is of

potential commercial interest and. within a period of s ixty (60) days

after completion of such tests, submit a report to the Management

Committee containing data obtained from such tests and its analysis and

interpretation thereof, together with a written noli

fic

ation to

th

e

Management Committ

ee

of whether,

in

the Contractors opinion, such

Discovery is of potential commercial interest and merits appraisaL

9.2.

If

the

Contrac

tor

de t

ermines to conduct a drill stem

or

production

test, in

open

hole or through a perforated casing, wit h r

ega

rd to

an

y

Di scovery, it shall notify the ONGC of the time of u ~ h lt::st at least

twenty

four

(24) hours prior to the proposed test, and

the ONG

C shall

have the right to have a re

pr

esentative present during such test.

9.3. If pursuant to Article 9.l(c), the Contractor notifies the Management

Committee that the

Di

scovery is of potential commercial interest, the

Contractor shall prepare and submit to the Management Committee within

one

hundred and

tw en

ty ( 120) days ofsuch notification, a proposed

Appraisal Programme with a

Wo

rk Programme and

budget

to carry

m lner

Ju< c lto

l ~ p a r l . . . _

ur1 P

fl lh

; v f

'''t _

J

::>o..oCio


21/44

20

out an adequate eff

ec

tive

appraisa

l

of

s uch Discovery designed to

detern1ine within the petiod specified in Article 9.5:

1 whether such Discove1y is a Commercial Discovery and

11

with reasonable precision, the boundaries

of

he Development Area.

9.4. The proposed Appraisal Programme for such

Di

scovery shall

be

reviewed

by the Management Committee within forty five (4

5)

days after

submission

thereof

pursuant

to

Article 9.3. The Management

Committee may req uest for

any

additional information as it may

reasonably require within fifteen ( I 5) days

of

submission by Contractor

of

the said Appraisal Programme.

Co

ntractor shall furnish such

information within tift

ee

n (15) days of the receipt

of

request from

Management Committee for such information.

Wi

thin fifteen ( I

5)

days of

the Management Committee's review, Contractor shall in

co

rporate any

revisions suggested by the Management Committee which Contractor

considers beneficial and shall provide the Management Committee with a

copy

of

the revised Work Programme. Said Appraisal Programme

including revisions,

if

any,

sha ll be adopted as the Appraisal

Pro

g

ramme

and the

Cont

r

ac

tor

shal

l

promptl

y commence

implementation thereof; and the budget for the Financial Year shall be

revised accordingly.

2 1.4.

No

n Associated

Na

tural Gas NAN

G)

In the

event

of a Discovery of

NANG,

the

Contractor

shall

promptl

y

repor

t

such Discove

ry

to th

e

Management

Committ

ee and

the provisions of Articles 9 1 and 9.2

sha

ll apply.

The remaining

provis

ion

s of Article 9

wo

uld apply to the

Discove

ry

and

Deve

l

opment

of NANG on ly

insofar as

they arc not

incon

sistent with the

provisions

of Article 21.

'

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~ m i n r J t .J

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22/44

2

If, pursuant to Article 9.1 (c). the Contractor notifies the

Management Committee that

the

Discovery is of potential

co

mm

ercial

interest.

the Contractor

shall s

ubmit

to the

Management Committee, within twelve I

2)

Months from

the date

of

notification

of

the above

said Discovery, the proposed

Appraisal Program, designed to determine i) whether

suc

h

Discovery is a Commercial Discovery and i i) the boundaries

of

the

Development Area.

21.4.3

The

proposed Appraisa l Program referred to in Article

21.4.2

shall

be

reviewed by the

Management Committee

within s ixt y

(60) days

of its submission by

the

Cont

ractor.

The

Management

Committee may request

for

any addit

ional

information as

it

reasonably require

within

tw

en

ty one (2 1) days of the submission

by

Contractor of the said Appraisal Programme. Contractor

sha

ll

furnish such information

within

twe nty one 21) days

of

the receipt

of

request from MC for such information. Following review

of

the

Appraisa l Program and related budget and any revisions agreed

by

the

Contractor,

the Contractor

sh all proceed to implement said

Appraisal Program. During

th i

s appraisal

per

iod

Co

ntractor shall

endeavour to complete gas

sales ag

reements wh

et

her with the

Government or

other

buyers.

21.4.4

If

on the basis of

the

result of

(he

Appraisal Program. the

Contractor

is

of th

e

opinion that NANG has been

discovered in

commercial quantities:

a

it

sh all submit to the Ma

nagement

Committee. as soon as

practicable but not later than s iXt y (60) Months from the date or

notification

of

the aforementioned Discovery, the

notification

for

declaration of the Discovery as

a

Co

mme rcial Discovery and

approval of the proposed Development

Area.

Such Development



23/44

Area may either be a

new Development

Area or a modi ti

ca

tion of an

ex

isting

Development

Area so as to en

comp ass the

proposed

Commercial

Disco

very within i

ts

boundaries bas

ed

on the r

eport

submitted.

Suc

h notification shall

take

into

account

the

Government s

po lici

es on gas

utili

zatio

n and

propose alte

rnati

ve op t

ions

(if

any) for

use

or consumption of the NANG a

nd

be

supported

by, in t

er

alia tech

ni

ca

l

and economic data

,

eva

luations.

interpretations and

analyses

of s

uch data,

and

feas

ibility studies

relating to the Di

scove

r} prepared by or on be half of the

Contractor and othe

r

relevant informa

tion.

If

no

notificati

on

of

Commercia

l

Disc

ove ry is s

ubmitted

to (he

Management Committee by the Contractor within si x ty (6 0)

Months

from the

date of notification of the sa

id

Discove

ry. the

Contractor shall

relinquish

its rights to

develop

such Discovery

and the

area

relatin

g to

such

Discovery shall

be exc

lud

ed

from

the Co

ntract Area.

Where the Contrac

tor

has submitted notification

r

the

declaration of a Discovery as a Commercial Discovery,

the

Management Co mmitte

e s ba

ll rev

1

c::w the Co nt racto

r

s

proposal for the

comm

ercial utilization of the

NANG

in the

domest ic

mark

et or elsewhere

and

in the context of

Government s

policy

on gas

utilization and

the

cha in

of

activities

required to

bring the NANG

from

the

D

elivery

Point

to

potential end

co

ns

umer

s in the

domestic

market

or

el

sew

here.

Th

e

Co

ntract

or

shall within t wet ve ( I

2) Months or

the

declaration

of

the

Discovery as a Commercial Di

scovery.

submit a Development Plan to

the Management

C

ommittee

for

tJ.. -ttnett

' ' t\A

Tru ' e

n.,

w mlner J

ualcl.lll

a n . . _

1 .

,., Co

u ot .

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lJ

U t

Ja

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.

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....



24/44

23 \...,


25/44

24

ISSUE N0.3:

Thi8

in

lilct IS the most important issue in

tlu;

dispute llctwccn the

parties. The Claima

nt has

all

along been contending that

the

discovery is

NANG

within the meanmg

of

Article

1.58

of

the PSC.

TI1e

Respondent has been insisting

the same to

be

oil even though at some potnt

of Lime the

Ministry

II uf

the

opinion that the discovery is

Gas.

Under the Production Sharing Contnlct

NAN

carried out hy Schlumbcr er

Asia Services l-imited. which is one

of

the world's largest

oi

l

fi

eld service

providers and the data

in

particular sent

lly the

C

laima111

to the Respondent

un 8'

11

January. 2007 after dtscovery was christened

as

"Gancsba

1

" whtch ts exhibit 2.

He also relied upon the test details

of

the wells submitted to the Respondent under

format-0 on 8'

11

March. 2007 ~ x h i b i t

and

contended that the very test results

unequivocally indicate that the discovery consisted predominantly

of

gas. though

presence

or

condensate

was h e r ~

to some extent. The letter

or

the

Claimant dated

8

111

Janu8f). 2007 to the Joint Secretary. Ministry

uf

Petroleum and Natural Gas

unequivocally

s t a t ~ s

that

the

Claimnnt submitted information about the

hydrocarbons discovery unde r Production Sharing Contmct. When the

Government

wanted deta

i

led particulars o

discovery in

fonnnt

B the some was

supplied under exhibit

and

a bare look

nl

column

IJ

would

i n d i c a \ ~

that the

discovery in question was predominantly though some quantity ofoil was also

present It is true that

in none of

these 2 formats submitted

by

the Claimant it was

indicHtcd to be NAN< i, but it

was

stated that il was a hydrocltrhon discovery. Gns

is deJined as natural gas in Article I 46 and

NANG

as defined in Article 1.58

means natural gas produced either without association

of

oil

or

in association

of

oil

which by itself cannot be commercially produced Oil has heen defined under

Article

1.59

to mean crude oil. I laving

r e ~ : : t to

the definiuon

of

NANG

in

e .

...

CI

co

.

f , .:ne r

n..p

,.,...,

u C U I , 'f

O f

n_ ,,, l

v

' - U

rh

..

~

f ' l

"



26/44

25

Anicle 1.58 and on exwninint; the data and pan1culars provided Uldcr fonnut A

and fonnnt B. the conclusion is irresistible that

the

di;covcry on 8.1.2007

from the

cont

nct

area

w s g n ~

nnd not oil. Tile Claimant in course of

r o c e e d i n g . ~

before

the Tribunal led evidence of several cxpcns,

who hove

unequivocally given

thei1

op1111011

about the discovery in question. One Mr Rllg.hu Hegde was ex:unined

before this Tribunal

who

ha; experience in

well

test and who was in employment

with Schlumberger Asia Services Limited. His employer was en)laged by the

Claimant to collect data and

Mr.

I legde stated the steps taken

by

hir>and under his

~ u p c r v i s i o n between the period December. 2006 and January 2007 I is cvdcncc

further discloses

that

the test repons ofDST-1. DST-2. DST-3 and DST

4

had been

issued by Scblumbergcr Asia Service-s Limited and

the

repons pennined to the mw

data obtained during the tests based on the actual llow and did

not

contain an;

opinion or interpretation. Ev idence of

Mr.

llegde is of

no

consequence in deciding

the question whether discovery was oil or gas.

But the

reports ard data in thn'c

reports were analyzed and interpreted b)

Dr

. John Sharry. a petroleum geologist.

who has 30 years experience

in

exploration and production

of

oil

and gas.

Tile

Cl

aimant wanted the comprehensive analysis

of

the da ta collected

by

Schlurnbergcr

and engaged

Am

igos Energy Advisor, Dallas (A migos), a leading Geotechnic;tl

Advisory vmup specialized

tn

interpretation of geological and g c o p h y ~ i c a l

evaluation of the prospects. Dr. John Sharry was the Chief Geologist of Am1gos

and h.: had examined

the

datft m relation to the discowry of exploratory well by

l

la

rdy Exploration

in th

conlntcl

nrca

on avcry

Offshore

and

after

detailed

analysis submitted the report on 28 h August. 2008. The SJtid Dr. Sharry proved the

n:port

in

course

of

his evidence before the Tribunal.

He

had given a report allcr

analyzing the data and materials. which is exhibit C-1 C and h categorically stated

111 his affidavit evidence. I confirm that tbe discovery ib gas 1md

not

oil and ony

appraisal and development of this discovery cun only be relat

ed

t


27/44

This cmcgorical evidence

or

experts examined by

the

Claimant

h a ~

not been

impeached in any manner in the cross examination by the Respondent. The entire

cross examination is extracted herein below. in extenso:

Dr.

Sharry ''(e)ross examined by

Mr.

Jagj it Singh, Lt:amcd Counsel. on

bdmlf of the Respondent.

Ql.

I put it to

yo

u that before giving

thi

report,

Ex

Cl6, CI6A

and

CI6B you

did not perfom1

any

chemical test.

Is

that correct?

A: Yes

, it is.

Q2. I put it

to

you

that the opinion given by you

in

terms

of

Ex.C I6,

16

A.I6B is

merely on tl1e saying of the Claimant Is it correct?

A:

No

it is

no

t correct.

Q3

: I put it to you that the Ministry of Petroleum. Govt. of India, was m;vcr put

to notice by you whi le entertaining reference from the Claimant for giving opinion.

Is it

concct'l

/1.: I had no communications with that Ministry.

Q4: Is

it correct that

the

report, Ex.C J6. is given by you on the basis

of

the data

alleged ly provided by the Claimant to you?

A: Yes, the data was provided by the Claimant and my opinion is based on

it.

QS: I

pu t it to

you

tha t before submilli

ng

the rcporl

you had

nol undcrlaken any

kiud of tests.

Is

that right?

;\ : 1 in

terpreted Vitrious types

of

data made available

to

me a

nd whi

ch

I

req

uested .

In

doing these analyses.

I

arrived at

my

conclusiQn

S.

6:

I

put it

to you

that your conclusions are not based on study

of the

subject

and

is

only presumptive.

Is it

correct?

A: No. That is nQt conect.

Q7

: I

put it to

you

that

your reports Ex. Ci6A and Ex.

C16R are

not correct.

Whnt

do

you

say?

A: Interpretations are interpretations. I

belie

ve

that

my interpretation of the

se 1:16-cv-00140-RC Document 1-3 Filed 01/28/16 Page 27 of


28/44

27

a Petroleum Engineer and

has

30 years ofassociation in exploration and production

of

Oil and Gas and was at one point

of

time Director

of

Indian School

or

Mines.

Dhnnbnd and at present

he

is Director of NIT. Du

rgupur.

As per

his

aflidovi1

he

wus

requested by the Cloimmu to give opinion relating to the

naum::

of discovo.:ry

tested in Block CY-OS/2 E a ~ t Coast of India and he examined the tests duta and

issued his opinion. As per his evidence he had reviewed the drill stem test results ol

the well FAN-A-I carried out Schlumhcrgcr nd

hud

opined that the maxnnum

volume of hydrocarbons flowed duri

ng

the t ~ s l w u ~ of gaseous

natu1-c

a d

negligible quantity

or

CQodensate. He

nlso reviewed the results

of

DS

'I

-2

and

DST-1 nnd opined that the condensate produced along

ith

gas is in the order of

7% of the total bydrocaabons produced. I

Je

finally gave

Ius

opinion that

th

e

quantity of condensate is ncgligihle

8J1d

economic development ofdiscovcl') could

only

be

based

on

tl1c gas

und

. therefore, discovery is

NANG

.

tlte aforesaid conclusion of this expert

Dr

. Tarkeshwar Kumar. has nnt

been

ltni)CS Cbcd

in any manner m the cross examination. The entire

cro:-.'

cxommation is extracted

herein

below in extenso:

QI. Is if correct that l>cforc submitting your repon. Ex. C30. you did not

perform any test to arrive

t

the opinion expressed

111

such rcpon?

\:

Yes,

I

had

not perfcm1ed any test.

Q2. I funher put it to you that the repon. Ex. C30, submi tted by you at t h ~

d1eLOte of

h

Claimant.

Is that

correct'

/\' No, it is not correct.

Q3. I further put it to you that you were not provided with true. a ~ t u a l und

se 1:16-cv-00140-RC Document 1-3 Filed 01/28/16 Page 28 of


29/44

8

7 . /

/ 77

Q4. l id you check up corrcclllcss of the data provided to you from Ministry of

Petroleum?

A: No.

Q5.

I

put

it to you that the opinion

E:x. C30

is based on theoretical assu111ptions

onl . What do you say?

A:

It

is not correct

as

the

repon

has

been prepared hased

on

information and

data provided to me.:, \\hich includes report of Schlumberger and Chennai

Pctmlcum Corporation Ltd.

On

the b;tsis of aforesaid evidence of two c x p c which remained

unchallenged in view of the nature of

cross

examination. which is set out earlier.

the Tribunal is of the opinion that the nature of th.: disco\'ery in the Block

CY

-OS/2

would unequivocally qualify unde1 the term of the Production Sharing Contract as

Non Associated Natuml Gas.

Not only h n ~ there been, practically. no e r o s ~ examination of all the

aforesaid

expert

witnesses to impeach their testimony. but also the Respondent

has

not chosen to examine any expcn on its

beha

lf to contmdict the testimony of the

experts

who

were examined by the ('laimant.

Mr. Jagjit Singh, L e a m e d J J \ 4 d i ~ o n a l S e l i ~ n e r a l appearing lor the

Respondent stated that since in the reports submitted

by

the Claimlllll th

ere

was no

mention of NANG with regard to the naunc of discovery, both in formm-J\ nnd

format-B.

the stand of the Claim:mt that the i s c o ~ c r y is NANG is an aficrtlwught.

According to him. in none of the documents aud correspondence between the

, 7

e 1:16-cv-00140-RC Document 1-3 Filed 01/28/16 Page 29 of


30/44

gas in

the

discovery with presence

of

condensate and. as such, it came within the

expression NANG

as

defined in Article I SS That apart. when the Respondent has

foiled to 1mpeoch the testimony of the two experts whose evidence has heen led by

the Claimant and the Respondent has not produced any evidence

of

experts on its

s ide. it is not possible for the Tribunal to whi ttle down the posit ive evidence

of

Dr.

John Shurry and Dr. Tarkcsl1war Kumar

, . _. ._._.

Mr

. Jagjit Singh, 1 - e a m e d ~ d i t i o o o i - S o l i c i t o r G e o l R l ~ for the Respondent,

sLrenuously urged that it is only the Managu1g Co11mittee which has the po".:r

under the contract to declare that the disoo\C ') either

gas

or

oil

and

since the said

Conunillcc had not been notified by 1he contrlctor that NANG had been

discowred, the Tribunal would not he justified in making any declaration about t h ~

nature

of

the discovery. The Management Committoc is const

it

tacd under Article

5

of

the contract. The said Commillce is consti tlllcd lor proper performance

of

petroleum operations. Article

5.4 enumemtes tl1e

powers and duties

of

the

Management Committee and Article

5 5 pro'

ides for the matters required to be

~ u b m i n e d to the Management Committee lor apii'Qval. laving

examined

lh.:

aforesaid two provisions of the contract. 1t is difficult to accept th.: submbsion of

the Counse l for the Respondent that it 1he a n ~ g i n g Committee who lms the

power lo decide the question whether the discovery is gas or oil. In

our

considered

opinion. Article 5 does not empower the Managing Comm iuce to muke ~ u c h

decision. t is only when the contractor. after furth:r exploration. has come to the

conclusion thai \he diswve ') is

a

commercial di:;co,ery. that the proposal for such

declaration

has

to

be

made

to

the Management CoTimittee under Article 5.5 (h).

n1at ~ t a g c has not reached in the case in hnnd. In this view

of

the matter.

we do nv1

_,.._.,.,_,

lind any s

ub

stance in the arguments of .earned .._Atf6tt.ionaHofi

ei

tor-Gcneral.

There

is no dispute t

ha

t in terms

of

Article 9.1

(a)

(b) and (c). the contractor

had

in limned in the prescribed proforma

of

the factum

of

discovery as well

as

nhou11hc

fact that the discovery w a ~

of

potential commercial interesl The Lcanc


31/44

30

but the detai ls submitted by the contractor

to

the Respondem in

F 0 1 1 n ~ t

A and

Format B unequivocally showed that the discovered product had predominance of

gas wi

th

a ~ m amount of o n d c n ~ t e and . n e c ~ ~ r i y thcrclorc.

it

calllc witll in

the

defi

n

it

ion

o

NANG

ns

defi

n

ed

in rticle

1.58.

The

Respo

n

dent

appears

to

be

obsessed with the Jact

of

presence of oil in the discovery in question.

In

mu

considered op inion, the mere presence of oil would not take the product out of the

category of as defi ned in Arti cle 1.58 so long as there existed the

predominance of

gas. The ResJXlndent appears to have committed an error

ill

concluding the discovery was oi l merely because oil w:is present in the discovery.

notwithstanding the fact that the figures and data indicated the presence

predominnn11y,

of

gas. The contention of the Res1>onde nt that t-;xhibits 2 lo

Exhibit

18

contlrm the discovery as oi l is wholly unsustainable. As has been

stated earlier, it is true that prior to the writing of Exhibit 18, there was no specific

mention by the Claimant that the discovery was NANG. but the substance

of

the

daw

or

the product which was found and which was reported to

the.:

Respondent

unequivocally indica ted the predominance of gas in the discovery. This conclu::.ion

of

ou rs is reaffi rmed by the opinion

of

the two experts examined by the Claimant.

which evidence has already been discussed.

It may be noticed at this stage that the Respondent led the evidence


32/44

across severdl documents submitted

by

the Claimant

in

support

of

ts stand that the

discovery is gas. Ihe witness also admitted t h ~ t he did not come across Exhibit

Cl6

the rep1ll1

of

Amigos Energy, which was gcncmtcd

by

tltc conrrnctor. /\ftcr

going through the evidence

or

this

w i t n c ~ s

the Iribunal is

of

the consid.:tcll

opinion that his evidence is of

no

assistance to resolve the dispute whether the

discovery in question was g a ~ NANG or oil. The witness neither has the expertise

nor the experience for

thi

s.

He

has not even

gone

through all the relevant records

of the Directorate

Cicnem

l of llydrocarbons before giving his evidence. I I ~ >

evidence. therefor

e.

is

not

helpful to the Respondent to contradict

the

evidence

of

t\\o

expertS: Dr.

John Sharry

and Or.

Tnrkeshwar

Kumar,

both

of

'hom had.

undoubtedly. the necessary expertise to interpret the data

from

the discover}

~ n d

come to

the

conclusion us to whether it is NANG , os claimed

by

the Claimant. or

oil

as

claimed

by

the Respondent.

II

is :nten:sting to notice at this stage that the Director of Hydrocnrhons.

who is the Technicul Advisor Body to the Mtmstry. in its Web Site nouficd the

discove

ry

in question mode by the Claimant as gus dtl Covcry and only on 14'h ot

Octubcr. 2009 chMgcd the site asserting that it was w r u n ~ l y given in the Web Site

us

gas. The

Claimant obtained the notings ofMinistry

by

taking n:coursc to Rtght

to lntommtion Act and produced the same before lhts l'ribunal and those n o t i n ~ : s

unequivocally indicate that the Ministry

was

n l ~ o

of

the opinion that lhe results

of

the

ll:Sts carried out

by

the Clatmant confirmed

the p r c s ~ n c e

of

gas,

which hnd been

approved by the Opemti

ng

Commillcc

on th

November,

2008.

which incl

uded the

rcprescnl8ti'cs from ONGC and GAIL. the two Public Sector n d e n n k i n g ~ who

arc the participating industries in the discovery in question. ultimately on account

of insistence of Director General ofHydrocarbons, I

he

Ministry preferred to go

hy

the snid advice in view o larger public interes t. f he Tribunal does not rely upon

the aforesaid

no

tings for

OtTiving

at its conclusion

on

Issue No .3,

hut

merely refers

to the

sarne to

indicate how the maner was dealt with by the Ministry t L ~ I f

Dispute like the one in hand, is amatter,

accuntle understanding

of

which



33/44

3:

pennns evidence

of

persons

havin the

skill to limn accurate impression \\hich is

termed experience. rhe matter to be testified. namely whether the d1scovery 1s

O il" or"

Gas is one

upon

which iL may clearly

be

presumptuous. for a rcrsnn

of

ordinary experience to testify and establish.

t

is upon the aforesaid premise thl

evidence of Dr. John Sharry and

Dr.

Tarkeshwar

Kum11r

is required to be

scrutinized and applied.

\n

expert s evidence is ncccsS


34/44

33

evidence and

do

not decide a dispute

or

usurp the lunct1ons of the Tribunal. but in u

world of acceleratiny ;cicntitic

and

technological advances. ever> ribunal

concerned wi

th

scient

ifi

c matters

h s

to rely upon such expert testimony.

In the

f o r e ~ i d

premises.

the

conclusion is

mc.51Stible

that the nature of

th


35/44

14 , \I

,

I]

1 I

cnade oil is 24 months from the date on whtch the discovery

W r

c>tablishing commcrcinlity of the discovery. 24 months in the c a . ~ e of oil and 60

months in the case of NANO.

In

new

of the finding that the disco vet) here comes

under the definition

of

NANG, the Tribunal

of

the opinion that Article 2

1.4..1

gels anraetcd and the contractor will be emitlcd to 60 months from the

da

tc o l tho

original notificati

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