Farming out CBM blocks: Will ONGC be third time lucky?

In 2012, after ONGC first farmed out stakes between 10 and 25% in these blocks, it was forced by Ministry of P&NG cancel bids and go for international bidding

Oil and Natural Gas Corporation (ONGC) is set to enter the market with its coal bed methane (CBM) assets a third time. Twice, the company had sold stakes in four of its CBM assets.

The company has prolific CBM blocks in Jharia, Bokaro and North Karanpura in Jharkhand and Raniganj in West Bengal.

“ONGC has taken concrete steps to discover CBM in the country and is currently operating in four CBM Blocks. In view of the mammoth and time-bound task, it has decided to farm-in experienced partners to execute the operations, the process for which is in advanced stages. It will not be prudent to divulge more details at this stage,” ONGC said in an emailed response.

In 2012, after ONGC first sold 10-25 per cent stake in these blocks, it was forced by the petroleum ministry to cancel the bids and go for international bidding. Later that year, it went for a re-bid and, in 2013, allotted stakes in the blocks.

But in 2014, the Brisbane-listed Dart Energy, which had been awarded 10-25 per cent stake in four ONGC blocks, decided to surrender the stake, citing the tough conditions of doing business in India.

In the case of Great Eastern Energy Corp, to which ONGC had divested 25 per cent stake in the Ranigunj CBM block, ONGC cancelled the agreement.

For the Raniganj north block, ONGC is the operator, with 74 per cent stake; Coal India Ltd (CIL) holds the rest of the stake. In the case of Jharia, ONGC holds 90 per cent, while CIL holds 10 per cent. For the Bokaro and north Karanpura blocks, too, ONGC is the operator, with 80 per cent; IndianOil Corporation holds the remaining stake in these blocks.

According to ONGC estimates, the Jharia block holds about 85 billion cubic metres of gas reserves. While the north Karanpura block holds 62 billion cubic metres, Bokaro holds 45 billion cubic metres and Raniganj north 43 billion cubic metres.

“ONGC has one of the most prolific CBM blocks in the country. But the company has failed to monetise it so far. At ONGC, things take their own time to move. I doubt ONGC will be able to have a CBM exploration plan in place even in the next five years. Reliance Industries and Essar Oil will beat ONGC in this segment, too,” said the chief executive of an exploration and production company that had been offered stake in one of ONGC’s CBM blocks.

Planned investment on the blocks is Rs 5,000 crore. Production from the blocks would increase 600-fold to six million standard cubic metres a day in 10 years, ONGC said.

The company has maintained since it was isolated in the case of these standalone blocks, it faced many concerns and, therefore, wanted to rope in a joint operator. So far, it has spent about Rs 510 crore on the four CBM blocks.

ONGC said: “The development plans for all the four blocks have been submitted and approved by steering committees. About 400 wells and 2,000 hydro-fracturing jobs will be carried out in the coming four-five years, according to the timelines of the CBM contract.”

ONGC has started selling CBM gas from existing wells at Parbatpur in the Jharia block at an approved price of $5.1/million British thermal units.

As of March-end, cumulative gas sale stands at 11.41 million standard cubic metres. The company is yet to start commercial CBM production from its blocks.