ONGC may buy 50% in GSPC block

ONGC may buy 50% in GSPC block

The central government-owned ONGC and the Gujarat government-owned GSPC are in advanced talks

to negotiate the price at which ONGC will take a 50%+ stake in the latter’s 1,850 square kilometer KG

Basin block.

KG-OSN-2001/3, which is set to commence commercial production as early as next month. GSPC is the

operator for the block and has an 80% share in the consortium.

Neither officials at ONGC nor the GSPC-consortium wished to comment on the contours of the likely

sale. Nor did petroleum minister Dharmendra Pradhan.

The deal is likely to be completed within the next few months and ONGC is likely to acquire a 50%+ stake

in the deal for a price of anywhere between $2 and $2.5bn.

Though ONGC and GSPC have been negotiating the deal since November last year, ONGC is reportedly

more confident of the viability of the block after having run its own simulations based on the data

provided by GSPC and ratified by reservoir-management firm Gaffney, Cline & Associates. GSPC’s

external consultants have also designed a new well —global major BP has also been providing some

assistance — likely to start producing by September, and officials are hopeful that the flow will be better

than in the previous wells. If so, GSPC can legitimately claim to have cracked the extremely difficult

extraction of ‘tight’ gas, made worse by the fact that it is also classified as high-pressure high-


GSPC is in the middle of a political storm with the Congress party alleging that the Rs 20,000 crore spent

by it so far has been a waste of resources since there is very little gas in the block. GSPC has, however,

stuck to the gas-in-place estimate of 14.4 trillion cubic feet (tcf) of which 7.6 tcf is recoverable. Based on

the information provided to it by GSPC on its exploration so far, the Directorate General of

Hydrocarbons, India’s oil regulator, has okayed gas-in-place estimates of over 10 tcf and recoverable

reserves of over 2 tcf — see graphic.

While the GSPC-consortium has already spent close to Rs 20,000 crore on the project including

borrowing costs of nearly Rs 6,000 crore, it does not have the funds needed to develop the block fully —

estimates are it will need another $1.5bn to develop the Deen Dayal West (DDW) field, perhaps another

$1bn for DDW Extension and anywhere between $4-6bn to develop other areas such as the Six


Though GSPC has been talking about selling a stake to global exploration firms as well, officials are more

confident about dealing with ONGC since a PSU-to-PSU deal is easier. Apart from the fact that ONGC

may be willing to pay more, a stake sale deal of this type entails intense negotiations which could fall

foul of the CAG/CVC.

While ONGC has nearly Rs 11,500 crore of cash reserves, it is in the process of embarking on its own

$5.1bn gas exploration programme in the KG-DWN-98/2 block which it bought from Cairn India — unlike

ONGC Videsh which has spent billions to buy discovered blocks.

In September last year, OVL sealed $1.25 billion deal to acquire 15% in East Siberian project Vankorneft

from Rosneft. It also forked out about $4.125 billion in a back-to-back 16% acquisitions in Mozambique’s

Rovuma Area 1.

ONGC has so far not spent too much money on domestic merger and acquisitions. Since 98/2 is close to

the GSPC facilities, ONGC could utilize some of the facilities already erected by GSPC.

GSPC has already set up well-head platform, processing cum living quarter platform, sub-sea pipeline

network and onshore terminal. These facilities have a capacity to process anything between 6 and 17

mmscmd of natural gas. Utilising the existing facilities could save ONGC over $1bn in its own project.

GSPC started test production from wells DDW-1 and 2 in August 2014 and from DDW-3 from September


These were conventional wells where initial results were positive but did not sustain for a longer period.

Currently, only DDW-2 is under test and producing about 0.1 mmscmd of gas.

Later, it drilled another well, DDW-4, where it utilised hydro-fracking technology. This well, the sources

said, would be put on stream for commercial production this month. The output is expected to rise after

a fifth well· DDW-5 would be completed later this year. At the same time, side-tracking model would be

implemented to DDW-1, 2 and 3 to hydro-frack and improve gas production from these wells.


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