Oil and Natural Gas Corp (ONGC) has won government's approval for acquisition of Gujarat State Petroleum Corp's entire 80% holding in a KG basin gas block for INR 7,738 crore. In December 2016, ONGC had agreed to buy entire 80% 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 USD 995 million (INR 6,443 crore).
The company will also pay part consideration of USD 200 million (INR 1,295 crore) to GSPC towards acquisition rights for discoveries other than DDW field in the block.
The company said the following,
"A farm-in agreement was signed with GSPC on March 10, 2017 with an economic data of March 31, 2017. Government of India has approved the acquisition of entire 80 per cent participating interest of GSPC along with operatorship rights. ONGC will make payments to GSPC on fulfilment of certain conditions precedent."
ONGC will pay USD 995.26 million for three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another USD 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% stake in the block. Originally, GSPC had offered ONGC its 50% stake in the block together with operatorship, but ONGC was not interested. Subsequently, GSPC offered its entire 80% stake in the block and ONGC.
GSPC, with a debt of INR 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 USD 2.75 billion, GSPC has seen a huge cost overrun, incurring USD 2.83 billion as on March 31, 2015. Additionally, it had run up an exploration cost of USD 584.63 million, taking total expenditure as on March 31, 2015, to USD 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.