Mumbai: Gujarat State Petroleum Corporation (GSPC) Ltd has hired consulting firm EY to re-evaluate onshore exploration and production assets held by the company, two GSPC officials said.
GSPC holds a participating interest in 24 blocks of which 20 are onshore while four are offshore. Of the 24 blocks, it is an operator in six blocks and a non-operating partner in 18.
“EY has been appointed for carrying out evaluation of onshore blocks only. The exercise is aimed at evaluating if it is possible to induct a strategic-cum-technical partner by farming out a part of GSPC’s participating interest and improve the performance of producing onshore blocks,” said a GSPC spokesperson in an email. Of the 20 blocks, 17 onshore blocks are producing properties.
“EY is assessing our blocks for us. Blocks where we are not an operator, we would want to get out of and invest our energy and finances in fields where we are operators,” added a senior GSPC official on condition of anonymity. The official said the re-structuring exercise would help the firm save on exploration costs.
EY declined to comment.
“EY shall carry out evaluation of all onshore blocks—both operated and non-operated. Based on the evaluation carried out by EY, the report will be placed for consideration of the board of directors of GSPC for an appropriate decision,” the spokesperson said.
GSPC is the flagship company of the GSPC Group, involved in exploration and production (E&P) of oil and gas. The government of Gujarat owns 87% of the company’s equity capital.
GSPC has already approached state-run Oil and Natural Gas Corporation Ltd (ONGC) to sell a stake in its primary asset, the Deen Dayal field in the Krishna-Godavari basin (KG basin), located off the east coast of Andhra Pradesh.
GSPC is the operator of the block with 80% participating interest. The firm clarified this block is not included in the evaluation exercise, as it is an offshore asset.
GSPC has invested $3.5 billion (approximately Rs.20,000 crore) in the block and taken on about Rs.19,500 crore of debt. Though it started test production from the block in 2014, it is yet to begin commercial output.
A second GSPC official, on condition of anonymity, said the KG basin field is one of the most difficult to extract gas from.
GSPC has been facing financial headwinds and has undertaken a business restructuring exercise to improve its credit profile.
A deal with ONGC will reduce its debt burden of nearly Rs.20,000 crore as of December 2015.
According to the restructuring scheme, set in motion in late 2015, GSPC will hive off its participating interest in the Krishna-Godavari Deen Dayal West (KG-DDW) block and its related assets and liabilities to GSPC’s offshore unit. The remainder of GSPC’s businesses (including exploration and production blocks other than KG-DDW, gas trading, wind power generation, and investments in subsidiaries and associates) will be merged into an energy unit. The scheme is subject to approval by lenders, the Gujarat high court, and regulatory agencies.
In a report on public sector firms in Gujarat for the year ended March 2015, the Comptroller and Auditor General of India pulled up GSPC for mismanaging its exploration and development-related activities in its KG basin and overseas assets, leading to higher costs and financial losses.
“The delay in commencement of gas production from KG-DDW, which has led to sizeable debt, has weakened GSPC’s credit risk profile. Priority for GSPC currently should be to deleverage the balance sheet and get the company in the right shape,” said an analyst with a domestic brokerage on condition of anonymity.
In fiscal 2016 GSPC incurred a net loss of Rs.804.42 crore, as it wrote off exploration expenditure. It recorded income from operations of Rs.10,607.30 crore on a stand-alone basis, compared with Rs.10,946,30 crore in the previous year.