ONGC signs pact to buy stake in KG basin block of GSPC

State-owned ONGC – Oil and Natural Gas Corporation has signed a preliminary agreement to take an operating stake in Gujarat government firm GSPC – Gujarat State Petroleum Corp’s KG basin gas block.

The MoU – Memorandum of Understanding signed last week has a quarrel resolution mechanism set out wherein any differences over issues such as valuation or natural gas reserves would be referred to a 3-member committee of outside experts. Sources said that GPSC wants to get Ongcon board to help tide over its problems in producing gas from the Deendayal fields, which 10 years back were touted as the biggest discovery in the nation.

Gujarat State Petroleum Corporation – Gspl began trial production of a small volume of gas from 4th August, 2014 but has not yet reached commercial production. Daily plateau production gas rate envisaged from DDN – Deen Dayal Upadhaya West field is around 5.663 million standard cubic meters per day according to approved FDP – Field Development Plan for a period of 14 years.

According to an RTI reply by the Oil Ministry’s technical arm DGH, there is problem of high pressure and high temperature in completion/drilling of wells in the field.

Sources said that this was perhaps for the 1st time that an MoU sets out a dispute resolution committee and it perhaps is indication of the risk that ONGC expects in buying a stake in the block.

The 3-member committee will comprise economist and former oil secretary Vijay Kelkar and former CVC P Shankar.

Since the BJP-led government came to power, 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.

The company initially was not keen to buy stake in the block because it felt the block had reserves far less than what GSPC was claiming. The asking price for the stake was not commensurate with the returns. But it has relented recently.

GSPC was to begin gas production from the block in the year 2013 but after sinking in 3.6 billion US dollars it was found that gas reserves are 1/10th of 20 trillion cubic feet claimed in the year 2005 and that too is technically problematic to produce.

In the process, it has amassed Rs.19,576 cr of debt, on which interest cost was Rs.1,804.06 cr in 2014-15, according to the CAG. Against this, its revenue was Rs.152.51 cr in 2014-15.

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