The central government-owned ONGC and Gujarat government-owned GSPC have signed an initial pact that would pave the way for ONGC buying a majority stake in the latter’s 1,850 square-kilometer KG basin block, KG-OSN-2001/3, sources confirmed to FE. Even though negotiations between GSPC and ONGC in this regard started as early as October 2015, this is the first time a formal memorandum of understanding has been signed between the two.
While the details of the MoU are not immediately known, analysts are curious about the valuation of the asset. ONGC and GSPC are not on the same page when it comes to the estimates about the reserves in the deep water block off Bay of Bengal. ONGC has asked Houston-based Ryder Scott to ‘independently’ review the reserves estimates after it found that the actual hydrocarbon that could be taken out is far less than the presumed 7.6 trillion cubic feet (tcf).
The valuation of the deal, earlier pegged around $1.5 billion, would depend on the actual recoverable reserves. The Ryder Scott report is expected by October-end, said an official directly involved in the negotiations. Earlier, reservoir-management firm Gaffney, Cline & Associates had said that the high-pressure-high temperature-low-permeability block gas-in-place of 14.4 trillion cubic feet (tcf) of which 7.6 tcf is recoverable.
FE reported on September 6 that GSPC is considering hiving off its deep-water block in the Krishna-Godavari basin into a separate company which would facilitate tax neutrality for GSPC for the deal. Also, ONGC as the buyer will practically benefit from deduction on all exploration and drilling expenditure incurred by GSPC in the block.
The MoU also provides to set up a three-member expert review committee that would help iron out differences between ONGC and GSPC. Though former petroleum secretary Vijay Kelkar and former Central Vigilance Commission P Shankar are said to be part of the committee, an official involved in the negotiations told FE that the committee members are yet to be appointed.
GSPC did not respond to an email seeking details on the pact till the time of going to the press. ONGC spokesperson declined to comment.
GSPC has spent whopping Rs 14,641.92 crore till March 2015, which exceeds the field development plan target of Rs 13,122.46 crore, to develop single field of the block — Deen Dayal West (DDW). For the entire block, which has other prolific areas such as the DDW Extension and Six Discoveries, an expense of Rs 19,576 crore has been incurred till March 2015. Currently, the output from the block, which is under ‘test-production’, is hovering less than 0.5 million metric standard cubic metres per day. The Congress party alleged that the amount spent by it so far has been a waste of resources since there is very little gas in the block.