GSPC in talks with ONGC to sell stake in gas block

Ahmedabad: Gujarat State Petroleum Corp. Ltd, a Gujarat government run entity, is in talks to sell a

controlling interest in its Deendayal block asset in Krishna-Godavari Basin to Oil and Natural Gas Corp.

(ONGC) Ltd.

ONGC is now closely looking at acquiring a controlling stake in the GSPC promoted Pandit Deendayal

block in KG Basin in Andhra Pradesh, two officials close to the development said. On Tuesday, ONGC’s

board approved raising $5 billion for investments in KG Basin.

ONGC is being offered at least 50% stake to make it the operator of the block with management control,

they added.

The two officials declined to divulge the deal size as negotiations were still on. A third Gujarat

government official said GSPC had created infrastructure which included sub-sea and inland pipelines,

offshore platform and an onshore gas terminal worth Rs.7,000-8,000 crore.

GSPC, the operator of the block with 80% participating interest, is open to selling its entire stake to

ONGC which has a proven track record in exploration activities in India, the official said.

The KG-OSN-2001/3 block (KG Block) was awarded to a consortium led by GSPC by the government of

India under NELP-III. The block covers an area of 1,850 sq. km.

In the past couple of months, there have been a series of meetings with top officials of ONGC and GSPC

in New Delhi for the deal, all the three officials said.

“GSPC’s field is one of the most difficult fields in the world. It is a deep water, deep pressure block with

tight reserves and hence not easy to extract gas. Having cleared technical barriers, GSPC has started

looking for a strategic partner,” said a senior GSPC official on conditions of anonymity. The low pricing of

gas had made the project financially challenging for GSPC for the past few years, he added.

The recent decision by the centre to almost double the prices for gas from difficult reservoirs, such as

the fields operated by GSPC in KG Basin has made the GSPC hopeful of closing the deal in the next 2-3

months.

“It makes immense sense for the two public sector companies to join hands. ONGC is very well-placed to

bring GSPC’s discovery to production,” said Narendra Taneja, head of energy, India, BRICS (Brazil, Russia,

India, China and South Africa) Business Council. “It would be a win-win situation for both.”

A Gujarat-based oil and gas expert, who did not wish to be named said that ONGC can expedite the

process of producing gas from its deep-water NELP Block KG-DWN-98/2 (KG-D5) by using GSPC’s existing

infrastructure which is up and running.

GSPC, which has 27 blocks in all, has piled up a debt of about Rs.20,000 crore, a majority of which is

towards financing exploration activity in the KG block. A deal with ONGC will reduce GSPC’s debt

burden.

The Comptroller and Auditor General (CAG) of India in its report that was tabled in the Gujarat assembly

on Thursday criticized GSPC for cost overruns. GSPC has blamed technical partner Canada-based Geo

Global Resources Inc. (GGR) for laying out a deficient geological model. GGR has refuted these

allegations.

“GSPC did not act upon a proposal for inducting strategic/financial partner at an appropriate time in

spite of high costs and technological challenges,” the CAG said in its report on Thursday.

GGR and Jubilant Enpro Pvt. Ltd, a part of the Jubilant Group, each hold 10% in the GSPC operated block

in KG Basin.

GSPC’s managing director Atanu Chakraborty could not be reached on his phone for comment. He has

been recently named as the new Director General of Hydrocarbons.

GSPC has spent about $3.5 billion on the project.

NGS INDIA