ONGC to buy into Adani-Welspun’s oil block off Mumbai coast

ONGC to buy into Adani-Welspun’s oil block off Mumbai coast

Pact will help ONGC establish continuity among three of its other blocks located in the same region

State-owned oil and natural gas explorer Oil and Natural Gas Corporation (ONGC) is in talks with Adani-Welspun Exploration Limited (Adani-Welspun) to buy a stake in the latter’s oil block in the western offshore region off the coast of Mumbai.

ONGC is in advanced talks to either partner with or completely buyout block MB-OSN-2005/2 held by Adani-Welspun since 2005, said two officials from the company on condition of anonymity. A deal could be signed before the end of the current fiscal, the officials said.

A pact between the two firms will help ONGC establish continuity among three of its other blocks located in the same region and develop these blocks using common infrastructure. It will also help Adani-Welspun monetize reserves in the block, which they have held for almost a decade now. ONGC has three blocks in proximity of the block held by Adani-Welspun—MB-OSN-2005/1, MB-OSN-2005/5 and MB-OSN-2005/6 which the company won in the eighth round of New Exploration Licensing Policy (NELP—Indian oil and gas block auction). While ONGC has established presence of crude oil in the block, its development for production is yet to start.

“If we are able to farm-in (buy a stake) into the block, it will be easier for us to develop the blocks held by ONGC as Adani-Welspun’s block lies between two of our Mumbai offshore blocks,” said the first ONGC official quoted above who declined to be identified.

Talks are at an advanced stage and Adani-Welspun is keen to monetize the block at the earliest, the official said. Adani-Welspun has two on-land exploration blocks—Cambay Basin in Gujarat and Assam-Arakan Basin in Assam—apart from the block in the Mumbai offshore.

The second official quoted above said Adani-Welspun prefers to offload a partial stake than sell off the block. Both officials declined to comment on valuations. A mail sent to Adani-Welspun and the ONGC spokesperson last week did not elicit a response.

“Transactions are normal in the oil and gas industry, where the bigger players are in lookout for acreages to optimize the use of resources in nearby blocks and to share risks and geological information,” said Debasish Mishra, a consulting partner with Deloitte Touche Tohmatsu India LLP.

While he did not want to comment on the talks between ONGC and Adani-Welspun, he said bringing in an experienced third party always helps. “ONGC has better holding power and would always be keen to acquire domestic production interest, given its strategic role in fulfilling the Prime Minister’s vision of reducing imports by 10% in next five years,” he added.

The move to buy into the Adani-Welspun block is a part of ONGC’s long-term plan to make western offshore its production hub. ONGC currently has three major mid-sea assets off the west coast: Mumbai High, India’s largest oil field; Bassein and satellite fields, which produce gas; and Neelam and Heera fields, which produce both.

The Mumbai High asset is India’s biggest oil field producing 210,000 barrels of oil per day (bopd), while Bassein and satellites is India’s biggest natural gas producing field producing 24 million metric standard cubic metres per day (mmscmd) of gas.

In November 2014, ONGC’s board approved a total investment of Rs.10,600 crore in western offshore over the next five years. In 2014-15, ONGC’s domestic crude oil production registered a marginal increase in production, mainly due to a 4.3% increase in production from its Western offshore assets. This helped reverse a 10-year trend of falling production reported by ONGC till last year, according to the company’s annual report.

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