ONGC Board approved MoU with GSPC for Gas Block

The board of ONGC (Oil and Natural Gas Corp) at its meeting on 8th September approved signing of a MoU for taking a stake in GSPC’s (Gujarat Petroleum Corp Ltd) difficult gas block, said sources familiar with the development.The MoU (memorandum of understanding) also approved the incorporation of a dispute resolution wherein any differences over issues like valuation or natural gas reserves would be referred to a three-member committee of outside experts.The sources also added that this is perhaps for the first time that a memorandum of understanding (MoU) sets out a dispute resolution committee which is perhaps an indication of the pitfalls that ONGC anticipates in buying a stake in the block.ONGC has already differed in opinion with GSPC on the gas reserves the block holds and to take a better decision of the same, has appointed US-based consultant Ryder Scott to do an independent assessment.Therefore, the three member committee will have economist and former oil secretary Vijay Kelkar along with former CVC P Shankar, they said and added third member will be appointed in due course.Since the BJP-led government came to power at the Centre, GSPC has been seeking to sell a majority stake in its KG-OSN-2001/3 (Deendayal) block located in Bay of Bengal to ONGC to avoid defaulting on the loans.ONGC initially was not eager to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and also the asking price for the stake was not commensurate with the returns. However, it has now agreed to look at the possibility and the MoU is a step further in that direction.ONGC has asked Ryder Scott Petroleum Consultants to evaluate gas properties in the GSPC block as well as independently certify the reserves quantities, added the sources.GSPC was to begin gas production from the block in the year 2013 but after sinking in $ 3.6 billion it was found that gas reserves are one-tenth of 20 trillion cubic feet as was earlier claimed in 2005 and that too is technically difficult to produce.In the process the company has amassed Rs 19,576 crores of debt, on which interest cost was Rs 1,804.06 crores in 2014-15, according to the CAG. And against this its revenue was Rs 152.51 crores in 2014-15.Sources added that GSPC has been doing trial production of a very small volume of gas from 4th August, 2014 and has not yet reached the point of commercial production and in the absence of revenue commensurate with the debt servicing obligations it risks becoming a defaulter.With the aim to bail out of the situation, GSPC has offered to sell 50 per cent stake to ONGC. Currently ONGC share price is trading at Rs 260.35. The share price opened at Rs 259.50 from a previous closing of Rs 260.55. ONGC is one of the top 500 shares recommended by Dynamic levels.

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