Keen to close KG Basin deal with GSPC by fiscal end: ONGC
ONGC wants to close the Krishna-Godavari Basin gas block deal with Gujarat State Petroleum Corporation Ltd (GSPC) by the end of this fiscal.
At the end of 2016, ONGC and GSPC had announced that the former will be buying out GSPC’s 80 per cent stake in KG-OSN-2001/3 for about $1.2 billion (₹8,100 crore).
The ONGC board has approved the deal and the company proposes to get clearance soon from the Directorate General of Hydrocarbons (DGH) and Ministry for Petroleum and Natural Gas.
ONGC Chairman and Managing Director DK Sarraf said: “We will sign the sale purchase agreement with GSPC very soon and thereafter GSPC will send the agreement to other partners for their consent and also to the DGH for their approval and amendment to the Production Sharing Contract (PSC).
“We would like to close the deal by the end of this fiscal, though it may appear a little ambitious as there are just around 31-odd days remaining.”
Sarraf told BusinessLine that since it is a block awarded to GSPC under the third licensing round of oil and gas blocks and governed by a PSC, it is not known whether an amendment to the contract will do or whether it will require a Cabinet nod. “The government will take a call,” he added.
Stating that ONGC will not be taking over GSPC’s debt, Sarraf said the deal valuation remains the same (at $995.26 million). Besides, GSPC has already built significant production facilities.
“As a part of the deal, GSPC will be compensating ONGC in the event the price of domestically produced natural gas in the country from high pressure-high temperature (HP-HT) gas discoveries falls below the valuation price,” he added.
In addition, ONGC will pay part consideration of $200 million to GSPC towards future remuneration for six discoveries other than Deen Dayal West Field, which will be adjusted upon valuation of these discoveries subsequent to approval of their field development plans by the DGH/management committee of the block.
Interestingly, ONGC has also protected itself from any volatility in gas prices during the period. Whatever will be the differential between the then prevailing gas price and the cost of gas taken during the time of valuation will be compensated to ONGC by the State government.
The Deen Dayal Field will act as a pivot in developing nearby HP-HT discoveries in Yanam and Godavari PML areas of ONGC simultaneously. The trial gas production from Deen Dayal has already begun.
ONGC also expects to bring the Cluster-I gas discoveries of KG-DWN-98/2 NELP Block and adjacent nomination blocks on fast-track development by utilising the infrastructure of the Deen Dayal West Field. Incidentally, ONGC has alleged that Reliance Industries and its partners in the adjacent block have been monetising gas from Cluster-I.
GSPC’s block in question has also had its share of controversy, with allegations that the reserves were inflated.
However, the company had maintained that the reserve in-place announced by the then Chief Minister of Gujarat was 20 trillion cubic feet (tcf) for the entire block which, according to the consultant who had assessed the area, would be 14 tcf on the lower side and around 20 tcf on the higher.
Recoverable reserves can vary by at least 50 per cent depending on the technology used and the strike rate. From Deen Dayal West, the recoverable reserve is estimated to be around 1.43 tcf and remaining area around 11 tcf.
GSPC holds 80 per cent participating interest in the block awarded to GSPC-Jubilant and Geo-Global Resources Consortium in 2003, with Jubilant and Geo Global having 10 per cent each.