ONGC buys GSPC asset in KG basin

New Delhi, Feb. 24: The board of ONGC Ltd has approved the signing of an agreement to buy debt-laden GSPC's entire 80 per cent stake in the KG basin gas block for $1.2 billion. The state-owned explorer will also invest $1.10 billion in GSPC assets to produce about 15 million tonnes of oil and about 3 billion cubic metres (bcm) of gas.

"The ONGC board has approved the execution of farm-in/farm-out agreement with GSPC in respect of an acquisition of 80 per cent participative interest (PI) and operatorship in the Nelp-III block KG-OSN-2001/3," the state-owned firm said.

ONGC's decision is in line with the government's idea of public investments taking the lead in stimulating the economy.

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. In December, ONGC had agreed to buy the stake of GSPC.

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 agreement sets forth the modalities to be followed to change the operator with the approval of the government, according to the existing production-sharing contract (PSC) and joint operating agreement of the block.

Besides the payout to GSPC, ONGC 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 nine 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.

The PSU oil explorer's board also approved capital expenditure in the western offshore R-series fields, including Ratna, which were restored to ONGC in 2016 after the government dropped its plan to let a private consortium develop it.

The fields would attract an investment of Rs 4,104.6 crore and could yield 8.4 million tonnes of oil and 1.7 billion cubic metres of gas during their life.

Oil production is expected to commence from these assets by 2018-19 and reach a peak rate of over 14,500 barrels a day in 2019-20, the company said in a statement.

The other fields that are being developed are Santhal in the Cambay basin and the western offshore fields, named B-147, BSE-11 and NBP.

In March last year, ONGC had announced plans to spend $5 billion over three years to develop two fields in the Krishna-Godavari basin.