ONGC to invest $5 billion to develop KG basin deepwater block

The ONGC board has approved a $ 5.076-billion field development plan for a portion of its deepwater oil

and gas block in the Krishna-Godavari basin on the east coast.

The investment translates into ₹34,012 crore and the total production estimated is 23.526 million

tonnes of crude oil and 50.706 billion cubic metres of natural gas. The investment is for developing

cluster 2 of the KG-DWN-98/2 block. The block is divided into three clusters.

Pricing freedom

The investment announcement comes less than three weeks after the government gave pricing and

marketing freedom to gas produced from deepwater, ultra deepwater and high temperature high

pressure fields. The pricing freedom will have a cap determined by the lowest of either imported fuel oil,

weighted average of landed price of coal, fuel oil and naphtha or the imported LNG’s landed price.

“The peak rate of production will be 77,305 barrels of oil per day and 16.56 million standard cubic

metres of natural gas per day. This is the biggest-ever financial decision taken by ONGC in its history,”

said ONGC’s Chairman and Managing Director D K Sarraf.

The first production of natural gas is expected in June 2019 and crude oil production is expected to

begin in March 2020.

Production levels

From the 2020-21 fiscal, the ONGC officials expect that the production from Cluster 2 will add $585

million to the companies profit after tax and $1.896 billion to the company’s revenue.

“As per the field development plan, a total of 35 wells will be drilled. Fifteen wells will be for oil

production, 12 for water injection and eight for gas production,” said Sarraf.

“At peak rate, oil production from Cluster 2 will be more than 15 per cent of our current production,

while natural gas production will be 25 per cent of our current output. Gas peak production will come by

2023-24. We aim to keep the peak production for five-six years,” he added.

ONGC is yet to finalise the funding sources for the investment. However, Sarraf said that while it can be

funded through internal resources, a final decision will be taken by the board.

Vankor stake purchase

ONGC Videsh, the overseas investment arm of ONGC, will raise the entire $1.268 billion it needs to

purchase a 15 per cent stake in Vankorneft from the overseas market.

“Now all that remains is that we complete the share transfer and make the requisite payments. The deal

size is around $1.268 billion and we will raise the entire amount from the overseas markets,” said Sarraf.

Vankorneft, the operator of the Vankor oil fields in Siberia, is a subsidiary of Rosneft, one the largest oil

and gas companies in the world.

ONGC Videsh had last year agreed to purchase a 15 per cent stake in Vankorneft. The deal was approved

by the Russian government last week.

NGS INDIA