In 2005, then chief minister of Gujarat and current prime minister Narendra Modi, made claims of Gujarat government-run GSPC finding more than 20 trillion cubic feet (tcf) of natural gas in a deep water block in the Krishna-Godavari basin.
This was then seen to be a first of its kind discovery with the potential to dramatically improve the energy landscape of the country.
More than a decade later, GSPC is now reeling under huge debt, the national auditor CAG has rapped it for bad management of the project and Congress party leader Jairam Ramesh has alleged that the R20,000 crore spent by the explorer so far in the 1,850 sq km East Coast block has been a waste of resources, since there is actually very little gas in the block.
GSPC has not been able to put the much-touted discoveries (in the block KG-OSN-2001/3) into commercial production and now wants to rope in ONGC as a partner. J N Singh, who is additional chief secretary with the finance department of Gujarat and is also the acting managing director of GSPC Group throws light upon the current status of state-run firm’s KG basin block and explains how its negotiations with ONGC are progressing. Excerpts from an interview held at Singh’s office in Gandhinagar with Siddhartha P Saikia:
What is the current status of the KG basin block?
This (block) is a national asset with tremendous potential. We have come to a position where we have exploited some of them. And we are very optimistic about the Deen Dayal West field (a part of the block), where one well (D4) has shown very positive results. Hydrofracking (six so far) has been quite successful at the well. We are now taking out about 11.6-11.9 million standard cubic feet of gas per day (mscfd) from the well. The output is practically matching the initial forecast, which was done in October before the fracking started. The fracturing and perforation will give us more than 20 billion cubic feet (bcf) of gas over the next three years. The Deen Dayal West field wells are extremely high-pressure-high-temperature ones.
If GSPC is achieving success in taking out the gas, why do you want to sell equity to ONGC?
Our financial limits have been stretched. That is why we are discussing stake sale with ONGC. If we had extremely deep pockets, we would have done it ourselves as we have come close to the end of the tunnel. The focus is that the gas production is now sustainable and showing a good flow. ONGC, which is a premier exploration company with good financials, could chip in. Also, they have a contiguous field. Partially they can use some of our standing resources—such as pipeline which they can use with some modifications. Their own fields would also work quite well. They are also working close to DDW field, where they can utilise our facilities to evacuate the gas. It is a win-win situation for both.
How much stake do you want to sell and how much funds you plan to raise from the sale?
It is early to comment on this. There are certain things and tax is one of the important factors. For example, the extent of benefit they would get in the form of tax relief after taking into account the earlier losses and investments already made in the block is a key factor. All these things would be looked into (before the deal size is determined).
But, ONGC has not agreed on your estimates of gas reserves. What is the way out?
When you do the negotiations, these discussions indeed take place. We have mutually agreed that since the opinions on the reserve estimate vary, so a third party (Ryder Scott) could look into it. We have also said that Gaffney, Cline & Associates would also have a look at the previous estimates. Currently, US-based Xodus is working with us. Several rounds of discussions have already taken place with ONGC and the process is continuing.
Do you think your predecessors did not manage the project efficiently?
I own up for all my predecessors’ works. In the case of hydraulic fracking till the time it is not done, you would never know the results. In the exploration industry, the first three-four wells always provide you insights. After the fourth and fifth wells, you get the experience, and you mature. This has happened to all exploration companies. We tried to do hydrofracking in the third well, but it was not successful and it collapsed. Then we discussed the scenarios with BP. It is only after experience that you learn.
CAG indicated that GSPC wasted funds in the block. Do you agree?
We are currently selling gas, but it is under trial production. Of the first three wells, D2 is producing. At that time, hydraulic fracking was not done. The D2 well is much better in terms of presence of gas. If we were sure about hydraulic fracking two years ago, we would have drilled much more gas than what we are getting now. In the D3 well, fracking was started at some level but it was a learning curve and it could not be successful. Now, we have demonstrated to ourselves that it has been done well. There are a few mechanical issues that we are sorting out.
Why you want to partner with ONGC and not auction the block or rope in a global giant?
There is a comfort level with ONGC as it is a central government-owned PSU and there is nothing bad if they earn some profits. If you sell the stake to a private firm and then it makes tremendous profit it’s like giving away your family asset and you might feel bad. If you sell your family asset to your own brother and he gains, it’s all within the family. ONGC is the biggest player in the country.
But ONGC has not been able to exploit its own block in KG basin for more than a decade?
I hope this would be one of the major fields for them now. We are having a three-day seminar with Xodus to discuss the experience of the fourth well. We have asked them to participate. It a joint learning experience.
How much more capex do you plan to invest in the block?
Every well in the block would cost anything between $45-75 million. We would drill the fifth well and Xodus is working with us. The fifth well is almost two-and-half to three times of the fourth well. We are expecting 58-60 standard cubic feet output. Depending on the performance of the fifth well, we could immediately go for the sixth and seventh wells. Conservatively, it should be around 2 mmscmd if all goes as expected.