ONGC board approves acquisition of GSPC stake for $1.2 bn

ONGC to acquire 80% of GSPC's stake in KG-basin natural gas block

Press Trust of India  |  New Delhi 

ONGC
The logo of ONGC is pictured along a roadside in Ahmedabad

The state-owned Oil and Natural Gas Corporation's (ONGC) board has approved the signing of definitive agreements for buying debt-laden State Petroleum Corp's (GSPC) entire 80 per cent stake in the natural gas block for $1.2 billion.

will pay $995.26 million for three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another $200 million will be paid for six other discoveries for which has been finalising an investment plan to bring them to production.

"Board has approved the execution of farm-in/farm-out agreement with in respect of an of 80 per cent Participative Interest (PI) and Operatorship in the NELP-III block KG-OSN- 2001/3," a company statement said in New Delhi.

had on December 23 last year agreed to acquire the stake of

Thereafter, "the two companies, after several rounds of discussions and legal due diligence, have agreed to the terms and conditions to be incorporated in the Farm-in / Farm-out agreement", the statement said.

The Farm-in/Farm-out agreement sets forth the modalities to be followed to effect the assignment of PI and change of Operatorship with the approval of the Government as per the existing Production Sharing Contract (PSC) and Joint Operating Agreement of the block, it said.

Besides the payout to GSPC, will have to pay for the entire development cost of the six discoveries which may run into at least a couple of billion dollars.

GSPC, which had a debt of Rs 19,716.27 crore as on March 31, 2015, has so far made 9 gas discoveries in the Bay of Bengal block. Of these, three — KG-08, KG-17, KG-15 — commonly known as Deendayal West (DDW) fields — have been approved for development.

But against an approved field development plan (FDP) cost of $2.75 billion, seen a huge cost-overrun, incurring $2.83 billion as on March 31, 2015. Additionally, it had incurred an exploration cost of $584.63 million, taking total expenditure as on March 31, 2015, to $3.41 billion.

According to the requirement of the FDP, 12 more development wells are yet to be completed which would further escalate the project cost.

The trial production from the DDW field commenced in August 2014, but the average production achieved is only 19.45 million standard cubic feet per day against a targeted commercial production of 200 mmscfd (Million standard cubic feet per day).

Commercial production has not commenced as production rate has not yet stabilised. The DGH approved FDP had envisaged commercial production from December 2011.

The official said FDP for the six remaining discoveries — KG-16, KG-22, KG-31, KG-21, KG-19 and KG-20SS, is under review of

As per the approved FDP of DDW fields, the estimated oil and gas in place (OGIP) was 1.952 trillion cubic feet (tcf).

Jubilant and Geo Global Resources (GGR) own 10 per cent stake each in the block.

ONGC board approves acquisition of GSPC stake for $1.2 bn

ONGC to acquire 80% of GSPC's stake in KG-basin natural gas block

ONGC to acquire 80% of GSPC's stake in KG-basin natural gas block
The state-owned Oil and Natural Gas Corporation's (ONGC) board has approved the signing of definitive agreements for buying debt-laden State Petroleum Corp's (GSPC) entire 80 per cent stake in the natural gas block for $1.2 billion.

will pay $995.26 million for three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another $200 million will be paid for six other discoveries for which has been finalising an investment plan to bring them to production.

"Board has approved the execution of farm-in/farm-out agreement with in respect of an of 80 per cent Participative Interest (PI) and Operatorship in the NELP-III block KG-OSN- 2001/3," a company statement said in New Delhi.

had on December 23 last year agreed to acquire the stake of

Thereafter, "the two companies, after several rounds of discussions and legal due diligence, have agreed to the terms and conditions to be incorporated in the Farm-in / Farm-out agreement", the statement said.

The Farm-in/Farm-out agreement sets forth the modalities to be followed to effect the assignment of PI and change of Operatorship with the approval of the Government as per the existing Production Sharing Contract (PSC) and Joint Operating Agreement of the block, it said.

Besides the payout to GSPC, will have to pay for the entire development cost of the six discoveries which may run into at least a couple of billion dollars.

GSPC, which had a debt of Rs 19,716.27 crore as on March 31, 2015, has so far made 9 gas discoveries in the Bay of Bengal block. Of these, three — KG-08, KG-17, KG-15 — commonly known as Deendayal West (DDW) fields — have been approved for development.

But against an approved field development plan (FDP) cost of $2.75 billion, seen a huge cost-overrun, incurring $2.83 billion as on March 31, 2015. Additionally, it had incurred an exploration cost of $584.63 million, taking total expenditure as on March 31, 2015, to $3.41 billion.

According to the requirement of the FDP, 12 more development wells are yet to be completed which would further escalate the project cost.

The trial production from the DDW field commenced in August 2014, but the average production achieved is only 19.45 million standard cubic feet per day against a targeted commercial production of 200 mmscfd (Million standard cubic feet per day).

Commercial production has not commenced as production rate has not yet stabilised. The DGH approved FDP had envisaged commercial production from December 2011.

The official said FDP for the six remaining discoveries — KG-16, KG-22, KG-31, KG-21, KG-19 and KG-20SS, is under review of

As per the approved FDP of DDW fields, the estimated oil and gas in place (OGIP) was 1.952 trillion cubic feet (tcf).

Jubilant and Geo Global Resources (GGR) own 10 per cent stake each in the block.
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