Experts bat for tie-ups as ONGC takes over operations of K-G

State-run Oil and Natural Gas Corporation (ONGC) is set to take over the operations of Deen Dayal Upadhyaya discovery in the Krishna-Godavari (K-G) basin on April 1 from Gujarat State Petroleum Corporation. However, experts have called for the company to engage strategic partners to monetise the asset.  

The ONGC board had cleared the $1.2-billion acquisition on February 24. According to the deal, Gujarat State Petroleum Corporation (GSPC) will buy natural gas from the block for $6 per million British thermal units (mBtu), which will increase to $6.9 per mBtu in the fifth year. “We are taking over the supervising operations of the GSPC assets on April 1. The entire process of taking over will be completed in the next six months,” said an official source close to the development.

This comes at a time when there were controversies surrounding the deal, with the Opposition calling it Rs 8,000-crore scam. However, ONGC claimed this would help the company in developing nearby discoveries in the Yanam and Godavari PML areas, and the KG-DWN-98/2 Block and adjacent nomination blocks as GSPC had already invested $2 billion in developing the infrastructure.  

“ONGC should engage with a domain expert or a strategic partner to monetise such fields. ONGC does not have the in-house capability to do it. Here, the stakes are very high and you need the best global techniques,” said R S Sharma, former chairman and managing director of ONGC and the chairman of FICCI Hydrocarbon Committee.

Though the deal size was expected to be $2-2.5 billion initially, ONGC was successful in bringing it down to $995 million, with another $200 million towards future consideration for six discoveries other than the Deen Dayal West Field. “It was a sweetened and an advantageous deal for ONGC. We are planning to connect cluster two in K-G basin to the GSPC infrastructure. It would mean we will be able to monetise 15 million standard cubic metres per day (mmscmd) of natural gas and 77 barrels of oil equivalent per day from cluster two only,” the ONGC official added.

GSPC’s discovery in 2005 is yet to get into the full flow of commercial production, despite the company investing a whopping Rs 19,576 crore. According to ONGC estimates, the region has reserves of about 27 billion cubic metres (bcm) and GSPC claimed it to be above 40 bcm, following which both the companies agreed at 29 bcm. GSPC was also in talks with Indian Oil Corporation to sell its 50 per cent stake in Rs 4,500-crore upcoming liquefied natural gas import terminal at Mundra in Gujarat.