This paper focuses on the, simultaneous estimation of the absolute permeability field and relative permeability curves from three-phase flow production data. Irreducible water saturation, critical gas saturation, and residual oil saturations are assumed to be known. The two-phase relative permeability p curves for an oil-gas system and the two-phase relative permeability curves for an oil-water system are represented by power 4 law models. T three-phase oil relative permeability curve is calculated from the two sets of two-phase curves using Stone's Model II. The adjoint method is applied to three-phase flow problems to calculate the sensitivity of production data to the absolute permeability field and the-parameters defining the relative permeability functions. Using the calculated sensitivity coefficients, absolute permeability, and relative permeability fields are estimated by, automatic history matching of production data.