GSPC may sell 30% equity in KG block

GSPC may sell 30% equity in KG block

Ahmedabad: Gujarat State Petroleum Corp. (GSPC) is finally making some progress on selling 30% stake in a block that contains its largest natural gas find to date, but previous delays could mean that production on this will start in the second half of 2010, almost two years behind schedule.

Meanwhile, confusion continues over the exact amount of gas reserves in this find, with the Directorate General of Hydrocarbons (DGH), the government body that validates finds and approves their commercial production, saying that there is much less gas in the find than GSPC had originally claimed.

The state-owned firm had, in April 2006, invited bids from international energy firms to sell 30% stake in its find in the Krishna-Godavari (KG) basin, off the eastern coast of India. A year earlier, the firm had announced that it had discovered reserves of 20 trillion cubic feet (tcf) of gas in the find.

In response to GSPC’s bid, 11 companies expressed their interest in picking up the stake; of this, GSPC shortlisted four—BG Plc. of the UK, BP Plc., Chevron Corp. of the US and ENI Spa of Italy— with whom it would share data collected during the drilling of its wells. Companies use this data to arrive at their own inferences on the quantum of reserves as well as the commercial potential of the block.

The four companies submitted their technical bids in June 2006. Meanwhile, GSPC reopened the entire process and allowed more firms access to its data. Among the companies that joined the race at this stage were Exxon Mobil Corp. of the US, Total SA of France, Statoil (UK) Ltd of Norway, Repsol YPF of Spain and Husky Energy Inc. of Canada. “As of today, there are nine companies in the fray to pick up equity in the project," said a senior GSPC official who did not wish to be identified.

There is still no clarity on the amount of gas in the field. DGH has said there is only 3.6tcf of recoverable gas in the find. But it has asked GSPC to drill more wells and see whether it can prove its initial claim of 20tcf of reserves. People close to the development who did not wish to be identified said that the company itself has scaled down its claim to 12-14tcf.

GSPC’s KG block is a deep-water offshore block and the extraction of gas from this requires technology that the firm does not possess. “GSPC has had to acquire knowledge regarding its deep-water offshore E&P (exploration and production) activities on-the-job. This is definitely a costly affair and is a very serious matter in case of E&P activity. No surprise then that GSPC has not been able to prove its claim of 20tcf, so far...," said a senior executive at one of the bidders who did not wish to be identified. Some people familiar with the matter say GSPC has?spent?$450?million (Rs1,769 crore) on its exploration efforts in the block to date.

M.Y. Farooqui, general manager (planning and exploration), GSPC, said the firm hopes to submit the final development plan for its KG basin find by end of January.

GSPC, at present, holds 80% stake in the block while Jubilant Enpro holds 10% and GeoGlobal Resources Inc. (GGR) of Canada and J.P. Roy, chairman of GGR, hold 5% each. Jubilant Enpro is part of the Jubilant conglomerate. Some members of the family that owns Jubilant have a significant stake in HT Media Ltd, the publisher of Mint.