ONGC is proceeding extremely warily on a plan to take over the gas assets of the Gujarat government-owned GSPC, given the political scuffle over the latter’s alleged extravagance. A high-level panel comprising former finance secretary Vijay Kelkar, former Indian Oil Corporation chairman MA Pathan and former central vigilance commissioner P Shankar would oversee the deal between the Centre-owned firm and GSPC.
According to a memorandum of understanding signed between the two companies early this month, ONGC will buy a majority stake in GSPC’s 1,850 sq km Krishna Godavari Basin block, KG-OSN-2001/3. Sources said the initial pact has also put in place the committee to oversee any “disagreements” between the players.
The move, the sources said, is because the top managements of both firms want to be protected from any adverse regulatory or judicial action that might follow the acquisition. ONGC is of the view that the actual hydrocarbon that could be taken out from the GSPC asset is far less than the 7.6 trillion cubic feet (tcf) estimated by the state government firm. ONGC has now asked Houston-based Ryder Scott to ‘independently’ review the reserves estimates.
Sources told FE that in case of any disagreements between GSPC and ONGC, the explorers would seek recommendations of the panel. However, interestingly, the recommendations of this panel, if any, would “not be binding” on ONGC.
ONGC is already developing another deep-water block — KG-DWN-98/2 — in the KG Basin.
The Congress had alleged that `19,576 crore spent by GSPC so far has been a waste of resources since there is very little gas in the block.
Industry players are of the view that multi-stage due-diligence mechanism could delay the deal between ONGC and GSPC. The negotiations between GSPC and ONGC in this regard started as early as October 2015, but it is yet to reach a consensus on reserves and its value.
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 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 KG 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.