ONGC hires consultant to assess reserves in GSPC KG gas block

New Delhi: State-owned ONGC has hired US-based consultant Ryder Scott to assess natural gas reserves in Gujarat State Petroleum Corp's (GSPC) Deendayal block before deciding to buy a stake in it.

Since the BJP-led government came to power at the Centre, the Gujarat government firm GSPC has been seeking to sell a majority stake in its KG-OSN-2001/3 (Deendayal) block in Bay of Bengal to ONGC to avoid defaulting on loans.

ONGC initially was not keen to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and the asking price for the stake was not commensurate with the returns.

"There is tremendous amount of pressure on ONGC to buy stake in GSPC block," a source with direct knowledge of the matter said. "Being a commercial organisation, it cannot throw away money so it has now decided to get the reserves in the GSPC block validated."

Ryder Scott Petroleum Consultants has been asked to evaluate gas properties in the GSPC block and independently certify the reserves quantities, the source said.

"The consultant will submit its report by November," he said.

GSPC was to begin gas production from the block in 2013 but after sinking in USD 3.6 billion it was found that gas reserves are one-tenth of 20 trillion cubic feet claimed in 2005 and that too is technically difficult to produce.

In the process it has amassed Rs 19,576 crore of debt, on which interest cost was Rs 1,804.06 crore in 2014-15, according to the CAG. And against this its revenue was Rs 152.51 crore in 2014-15.

Sources said GSPC has been doing trial production of a very small volume of gas from August 4, 2014 and has not yet reached commercial production and in absence of revenue commensurate with the debt servicing obligations it risks becoming a defaulter.

To bail out of the situation, it offered to sell 50 percent stake to ONGC, they said.

Money from ONGC can repay a part of the debt and the remaining would become a joint liability of the two firms.

Sources said GSPC also wants ONGC to use its under-sea infrastructure for a fee.

ONGC has gas discoveries in a neighbouring block and GSPC wants gas from those to be routed through its Deendayal block infrastructure for onward transportation to the shore.

But the state-owned firm feels it was not technically feasible as its KG-D5 gas cannot be mixed with GSPC's gas which has high levels of sulphur and carbon dioxide content. Also it is high-pressure and high-temperature gas.

Besides, the GSPC facilities on Deendayal field are about 60-km away from the Cluster-II gas fields in ONGC's KG-DWN- 98/2 block and pumping gas that far is not feasible.

Sources said ONGC feels it is not cost effective to install compressors on the seabed to pump gas from its fields to GSPC facilities.

GSPC's field is one of the most difficult fields in the world as cost of extracting gas would be in the vicinity of USD 12 per million British thermal unit, double the rate provided by the government currently, they said.

The company is producing 0.6 million standard cubic metres per day (mmscmd) of gas from the field as trial production for almost two years now.

As per the approved field development plan (FDP), natural gas production was to reach 3.83 mmscmd in second year and achieve peak output of 5.24 mmscmd in the third.