State-owned Oil and Natural Gas Corp. has firmed up an ambitious development plan for the eastern offshore block it is buying from Gujarat State Petroleum Corp. (GSPC) for about $1.2 billion, aimed at extracting an estimated 7.6 trillion cubic feet (tcf) of gas.
ONGC has said the idea is to drill the block OSN-2001/3 eight times more than GSPC has already done. Test production is on from one of the discoveries in the block.
In reply to an emailed query from Mint, ONGC said it will drill 32 wells in the KG-OSN-2001/3 block between 2017-18 and 2031-32, in addition to the four earlier drilled by GSPC and the one currently in progress.
ONGC did not specify the capital spending it will make in the block, but its development plan announced March for a neighbouring block in the Krishna Godavari basin-KG-DWN-98/2-which also involves drilling 35 deep water wells has an estimated cost of $5 billion, its highest ever investment in a single block.
ONGC, which produces 26 million tonne of oil and 23 billion cubic metres of gas a year accounting for about 70% of the country’s crude oil and gas output, mostly from matured fields, wants to both add new reserves to its portfolio as well as to access more producing assets. Earlier this year, the company signed deals with Russia’s Rosneft PJSC to acquire 26% stake in its unit, JSC Vankorneft, which has a licence to produce hydrocarbons from the Vankor field in Siberia, for 2.18 billion.
ONGC does not require borrowings to fund its purchase of GSPC block, for which it is paying $995.26 million for the Deen Dayal West field and another $200 as part payment for six other discoveries.
“The funding for this transaction would be made from our internal accruals. ONGC will prepare Field Development Plan (FDP) for these six discoveries. Once FDPs are approved, then the valuation of these fields will be made and commercial value will be assigned against part payment of US $ 200 million,” ONGC said in its reply.
The company will, however, save some development cost as GSPC has already built infrastructures such as well head platform, process cum living quarter platform, sub-sea pipeline, and onshore gas terminal. GSPC is selling the block on account of project delays and fund constraints. The block being in a high-pressure, high-temperature area, gas production from there is eligible for a liberal pricing scheme introduced in March.
An email sent to GSPC remained unanswered at the time of publishing.
According to advisory firm Crisil Ltd., the government’s ambitious plan to more than double the share of natural gas in the country’s energy mix from 6.5% in 2015 to 15% over the medium term requires about $10 billion investments in pipeline and gas import infrastructure alone. Another requirement is for gas consumption to go up for electricity generation. The share of gas-based power in total generation plunged to 4% in 2015-16 from 12% in 2010-11 because of inadequate domestic supply and unviable import prices, said Crisil in a note last week.
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Source: Mint
