ConocoPhillips leaves ONGC at deep end of the KG pool

Sep 30 2013, 08:51 IST
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US-based ConocoPhillips rethinking giving technical and equity support to ONGC’s deepwater resources. US-based ConocoPhillips rethinking giving technical and equity support to ONGC’s deepwater resources.
SummaryUS energy giant, however, remains committed to ONGC's shale gas ventures.

In a setback to state-run ONGC, US-based ConocoPhillips, a key partner in its ambitious exploration and production (E&P) projects, is rethinking giving technology and equity support to the latter’s deepwater resources. The Houston-based energy major’s apparent back-tracking from the terms of an MoU signed with Indian PSU in March 2012 where the latter’s domestic deepwater blocks was a highlight, is seen as a fallout of the continuing imbroglio over gas pricing in India besides an unreliable regulatory framework.

ConocoPhillips’ input is critical to ONGC’s much-vaunted KG block, for which the PSU has lined up plans to invest $9 billion by 2030.

Confirming the development, a senior ONGC official told FE: “Last year, we had signed an MoU with ConocoPhillips for shale gas and deepwater projects in India; the US and other parts of the world were covered under it. It was basically about their interest in any of our deepwater blocks. However, they might not come in for deepwater (production),” a senior ONGC official said. The US energy giant, however, remains committed to ONGC’s shale gas ventures.

The PSU has been in talks with Shell to sell stakes in KG block but hasn’t got any definite commitment from the Anglo-Dutch oil and gas major as yet.

ONGC has little experience in producing from deepwater blocks and is counting on the expertise of foreign partners to produce from these technologically complex zones.

It was earlier reported that ONGC had sought ConocoPhillips technology for deepwater exploration in around 19-20 blocks.

The ONGC official added there are several compelling reasons that dissuade foreign firms like ConocoPhillips from participating in Indian deepwater blocks. First, there are huge investments worth billions of dollars associated with such blocks. Second, the recent controversy around Reliance Industries’ KG D6 block (the government wants the company to pay up for not meeting its production targets) has dampened the general investment climate in India even as there are attractive opportunities for energy MNCs in other parts of the world. “The current gas price of $4.2/mmBtu is not remunerative enough, and uncertainty looms large over the revision based on the Rangarajan Committee recommendations,” the official said. The matter is also before the Supreme Court.

The biggest casualty of ConocoPhillip’s decision could be on ONGC’s gas-rich KG basin block which is said to hold about 4.85 trillion cubic feet (tcf) of gas reserves (22 mmscmd of gas at peak production) and has shown good prospectivity for oil as well. This will be the company’s first significant producing block in the technologically-challenging deepwater zone when it comes on stream in 2017-18.

“Shell has been in discussions with us on deepwater. We were told that in case they were not interested in buying a stake, they could just provide us technology backup and consultancy for 98/2 (KG-DWN-98/2 block). We are still hopeful that they will join,” the ONGC official said.

ONGC has discovered gas in eight exploratory wells in the KG-DWN-98/2 block, the appraisals of which are expected to be completed in the next 2-3 months. One of the wells was drilled as deep as 2,541 metres. It was awarded to Cairn in the NELP round in 2000, which offloaded 90% stake to ONGC in 2005 before selling out completely.

ONGC’s KG block has received interest from international players in the past as well but delays in approving their participation stymied their entry. Though the farm-out agreements for giving 15% to Brazil’s Petrobras and 10% to Norway’s Statoil were signed in 2007, a joint operating agreement could not be signed.

An official from the upstream regulator Directorate General of Hydrocarbons (DGH), said that ONGC has been exploring in deepwater blocks right from the nomination era, before the NELP rounds, but did not find it viable owing to huge costs and lack of technical expertise.

Bob Fryklund, chief upstream strategist at IHS, however, said that more than technical expertise, which can be acquired with the help of consultants, it’s the difficult regulatory environment and unattractive pricing policy in India that has resulted in a weak deep water play for Indian companies.

A report commissioned by BP to global information company IHS on 12 basins in India notes that only onshore gas is economical within the price proposed by the Rangarajan Committee. The report states that water gas production is viable between $8-$12/mmbtu, and ultra-deepwater gas at $1012/mmbtu.

Deepwater crisis

* US-based ConocoPhillips rethinking giving technical and equity support to ONGC’s deepwater resources

* Backtracking seen as fallout of imbroglio over gas pricing in the country, besides an unreliable regulatory framework

* ConocoPhillips' input is critical to ONGC's much-vaunted KG block, in which the PSU plans to invest $9 bn by 2030

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