State-run ONGC will pay over $1.2 billion for buying debt-laden GSPC’s entire 80% stake in KG-basin natural gas block, which is struggling to start commercial production despite trial outputs starting nearly two-and-half years back.
Oil and Natural Gas Corp (ONGC) will pay $995.26 million for the three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another $200 million will be paid as advance consideration of six other discoveries, for which GSPC has been finalising an investment plan from bringing them to production.
“Once the field development plan (FDP), which details the producible gas reserves, is approved by the regulator DGH, we will arrive at a valuation and pay GSPC,” a top ONGC official said.
Besides the payout to GSPC, ONGC will have to pay for the entire development cost of the six discoveries which may run into at least a couple of billion dollars.
GSPC, which had a debt of Rs 19,716.27 crore as on March 31, 2015, has so far made 9 gas discoveries in the Bay of Bengal block. Of these, three – KG-08, KG-17, KG-15 – commonly known as Deendayal West (DDW) fields – have been approved for development.
But against an approved field development plan (FDP) cost of $2.75 billion, GSPC seen a huge cost-overrun, incurring $2.83 billion as on March 31, 2015. Additionally, it had incurred an exploration cost of $584.63 million, taking total expenditure as on March 31, 2015 to $3.41 billion.
As per the requirement of the FDP, 12 more development wells are yet to be completed which would further escalate the project cost.
The trial production from the DDW field commenced in August 2014, but the average production achieved is only 19.45 million standard cubic feet per day against a targeted commercial production of 200 mmscfd.
Commercial production has not commenced as production rate has not yet stabilised, the official said. The DGH approved FDP had envisaged commercial production from December 2011.
The official said FDP for the six remaining discoveries — KG-16, KG-22, KG-31, KG-21, KG-19 and KG-20SS, is under review of GSPC.
As per the approved FDP of DDW fields, the estimated oil and gas in place (OGIP) was 1.952 trillion cubic feet (tcf) with a projected cumulative production of 1.0596 tcf at a recovery rate of 54.3%.
The official said the ONGC board approved the acquisition of Gujarat State Petroleum Corp’s (GSPC) entire 80% stake in the block on Friday and an agreement for the same would be set to the Gujarat government owned firm within next few days.
“The pact for acquisition will be signed in next week or ten days and we hope to conclude the deal by March end after necessary regulatory approvals from DGH and the government obtained,” he said.
Jubilant and Geo Global Resources (GGR) own 10% stake each in the block.
GSPC began trial production of a very small volume of gas from August 4, 2014 but has not yet reached commercial production.
“Daily plateau production gas rate envisaged from Deen Dayal Upadhaya West field is around 5.663 million standard cubic meters per day as per approved field development plan (FDP) for a period of 14 years. There is problem of high pressure and high temperature in completion/drilling of wells in the field. No final date of commercial production has yet been given by operator (GSPC),” according to an RTI reply by the oil ministry’s technical arm Directorate General of Hydrocarbons (DGH).
Since the Bharatiya Janata Party (BJP)-led government came to power at the centre, the Gujarat government firm GSPC has been seeking to sell a majority stake in its KG-OSN-2001/3 block in Bay of Bengal to ONGC to avoid defaulting on loans.
ONGC initially was not keen to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and the asking price for the stake was not commensurate with the returns. But it relented lately.