Cairn takes fight with ONGC to KG basin

After the onshore blocks of Rajasthan, the war between Cairn and ONGC has found a new frontier: The deep waters of the Krishna-Godavari (KG) basin.

Cairn India, in a letter to the oil regulator, the Directorate General of Hydrocarbons (DGH), and the oil ministry, has accused ONGC of overstating gas reserves in its KG-DWN-98/2 block in the KG basin and submitting development plans without consulting it.

Cairn India, a minority partner in the block, had made four discoveries there before selling its 90 per cent stake to ONGC in 2005. Subsequently, ONGC made six significant discoveries and the first ultra-deep water discovery, UD-1, at a record depth of 2,841 metres.

The block has been in the news as the company is planning a mega investment to develop it commercially. It could become the second-largest offshore asset in the country after Reliance Industries’ (RIL’s) KG-D6 block. Incidentally, the two are located next to each other.

In the letter, a copy of which is with Business Standard, Cairn said: “We believe that the hitherto discovered oil and gas resources in the block are only marginal to non-commercial because of their small size and potential high development costs due to water depth.”

ONGC has estimated in-place reserves of 6.3 trillion cubic feet (tcf) and will shortly file its development programme. It is looking to invest $7.3 billion and is in talks with global deepwater upstream companies such as British Gas and ENI for a tie-up.

“Innovative development models will have to applied to make these resources viable,” said Cairn.

Cairn, known for its expertise in assessing hydrocarbon resources — especially after its discovery in Rajasthan after Royal Dutch/Shell, a much bigger player, exited — has sought “a correct reserve estimation through an independent agency.”

Cairn has not spared Schlumberger, one of the world’s largest energy services company, either. “The work undertaken by Schlumberger Data and Consulting Services in 2007 is flawed. It has substantially overestimated the resources,” it said.

Cairn also alleged that ONGC did not pay attention to its protests. “It is imperative that a new study is undertaken by a third party of repute which enjoys the confidence of both ONGC and Cairn, such as DeGolyer & MacNaughton, for a correct assessment of the resources, based on which the stakeholders will be able to take appropriate decisions.”

In response, ONGC said, “A conceptual development plan has been submitted as part of a proposal for Declaration of Commerciality (DOC) in respect of the northern discovery area of block KG-DWN-98/2. The proposal is under DGH’s consideration. The volumes, expenditures and production profiles quoted are part of the DOC proposal.