ONGC plans to buy majority stake in GSPC's KG gas block

State-owned ONGC is mulling buying a majority stake in GSPC's Krishna-Godavari basin gas block, which

will help prevent the Gujarat government firm's Rs 19,500-crore loan from turning into an non-

performing asset (NPA).

Since the BJP-led government came to power in the Centre, Gujarat State Petroleum Corp Ltd (GSPC)

has been seeking to sell a majority stake in its KG-OSN- 2001/3 (Deendayal) block in the Bay of Bengal to

Oil and Natural Gas Corp (ONGC), sources said.

GSPC was to begin gas production from the block in 2013 but after investing $3.6 billion, it was found

that gas reserves were one-tenth of the 20 trillion cubic feet claimed in 2005 and that it was technically

difficult to produce.

In the process it had amassed Rs 19,576 crore of debt, on which interest cost was Rs 1,804.06 crore in

2014-15, according to the Comptroller and Auditor General. And against this, its revenue was Rs 152.51

crore in 2014-15.

Sources said GSPC has been doing trial production of a very small volume of gas from August 4, 2014,

and has not yet reached commercial production. In the absence of revenue commensurate with the

debt servicing obligations, it risks becoming a defaulter. To bail out of the situation, a few weeks back it

offered to sell 50 per cent stake to ONGC, they said.

Money from ONGC can repay a part of the debt and the remaining would become a joint liability of the

two companies. Sources said GSPC also wanted ONGC to use its under-sea infrastructure for a fee.

ONGC has gas discoveries in a neighbouring block and GSPC wants gas from those to be routed through

its Deendayal block infrastructure for onward transportation to the shore. But, the state-owned firm

said this was not technically feasible, as its KG-D5 gas cannot be mixed with GSPC's gas which has high

levels of sulphur and carbon dioxide content. Also it was high-pressure and high-temperature gas.

Besides, the GSPC facilities on Deendayal field are about 60 km from the Cluster-II gas fields in ONGC's

KG-DWN- 98/2 block and pumping gas that far was not feasible.

Sources said ONGC said it was not cost-effective to install compressors on the seabed to pump gas from

its fields to GSPC facilities.

GSPC's field is one of the most difficult fields in the world as cost of extracting gas would be around $12

per million British thermal unit, double the rate provided by the government currently, they said.

The company has been producing 0.6 million standard cubic metres per day (mmscmd) of gas from the

field as trial production for almost two years now.

NGS INDIA