Mumbai: The Indian government on Friday slapped a $1.55 billion fine on Reliance Industries Ltd (RIL) and its partners BP Plc. and Niko Resources Ltd, for extracting gas from state-run Oil and Natural Gas Corp. Ltd’s (ONGC’s) deepwater block in the Krishna-Godavari basin for seven years.

Press Trust of India (PTI) and Reuters reported that a government notice seeking the penalty also gave the firms 30 days to respond.

“The Contractor (RIL, BP and Niko) has worked within the boundaries of the block awarded to it and has complied with all applicable regulations and provisions of the Production Sharing Contract (“PSC"). The claim of the Government is based on misreading and misinterpretation of key elements of the PSC and is without precedent in the oil & gas industry, anywhere in the world," an RIL spokesperson said in an emailed statement.

“The liability of the Contractor has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary. RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government."

BP, too, confirmed receiving the letter and said the “resolution of such geological boundary disputes should be based on well-established international petroleum industry practices and in line with the PSC".

RIL shares fell 1.92% on Friday to close at Rs1,005.80 on the BSE while the benchmark Sensex index dropped 0.57% to close at 27,274.15 points.

“It (will be) a long court battle. The market (has) already discounted this penalty. Hence, we do not see any impact in the near future," said Rajnath Yadav, a research analyst at Choice Broking.

Justice A.P. Shah, who was appointed by the government to look into the matter, said in his report presented on 31 August that the government should quantify the “unfair enrichment" gained by RIL and its partners.

Whatever benefits the companies may have derived was liable to be returned to the government, the report said. The committee did not recommend any compensation to ONGC, which it said had no ownership rights over the natural resource.

“The Government of India, and not ONGC, is entitled to claim restitution from RIL for the unjust benefit it received and unfairly retained. ONGC has no locus standi to bring a tortuous claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas" a PTI report cited the A.P. Shah committee report as saying.

ONGC claims that between 1 April 2009 and 31 March 2015, about 11 billion cubic metres (bcm) of gas flowed to KG D6 field from adjacent fields, of which 8.9 bcm was appropriated by RIL, said the panel, citing a report by DeGolyer and MacNaughton, a US-based consultancy hired jointly by ONGC and RIL which had earlier confirmed flow of gas from ONGC’s field to RIL’s. At the prices prevailing at that time, the gas was worth Rs11,000 crore.

ONGC’s two blocks are adjacent to the RIL-operated block. Calgary-based Niko Resources has a 10% stake in RIL’s block while UK- based BP has a 30% stake.