State-owned Oil and Natural Gas Corp (ONGC) has won government approval for the acquisition of Gujarat State Petroleum Corp's entire 80 per cent holding in a KG basin gas block for Rs 7,738 crore, the company said.
ONGC had in December last year agreed to buy entire 80 per cent interest of GSPC along with operatorship rights, in Deen Dayal West (DDW) gas field in Block KG-OSN-2001/3 in the Bay of Bengal for $995 million (Rs 6,443 crore).
The company will also pay part consideration of $200 million (Rs 1,295 crore) to GSPC towards acquisition rights for discoveries other than DDW field in the block.
"A farm-in agreement was signed with GSPC on March 10, 2017 with an economic data of March 31, 2017," ONGC said in notes to its first quarter earning disclosure.
During April-June quarter, "Government of India has approved the acquisition of entire 80 per cent participating interest of GSPC along with operatorship rights," it said.
ONGC will make payments to GSPC "on fulfilment of certain conditions precedent," it said without elaborating.
A company official said the deal is likely to be closed within one month.
ONGC 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 GSPC has been finalising an investment plan to bring them to production.
Jubilant Offshore Drilling Pvt Ltd and Geo Global Resources (India) Inc hold 10 per cent stake in the block.
Originally, GSPC had offered ONGC its 50 per cent stake in the block together with operatorship, but the state-owned firm was not interested. Subsequently, GSPC offered its entire 80 per cent stake in the block and ONGC on December 23 last year.
GSPC, with 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, GSPC has seen a huge cost overrun, incurring $2.83 billion as on March 31, 2015. Additionally, it had run up an exploration cost of $584.63 million, taking total expenditure as on March 31, 2015, to $3.41 billion.
As per the requirement of the field development plan (FDP), 12 more development wells are yet to be completed, which will further bump up 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.
Commercial production has not commenced as the 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 GSPC.
As per the approved FDP of DDW fields, the estimated oil and gas in place (OGIP) was 1.95 trillion cubic feet (tcf).