Home / Industry / Energy /  ONGC to invest Rs4,000 crore in four coal bed methane gas blocks

Mumbai: State-owned Oil and Natural Gas Corp. Ltd (ONGC) has decided to invest 4,000 crore to develop its four coal bed methane (CBM) gas blocks.

Two of the four blocks—in North Karanpura and Bokaro, in Jharkhand—would start production by the second half of 2017-18, a senior ONGC official said. Methane is a form of natural gas extracted from coal beds.

The company has sold a 25% stake in its North Karanpura CBM block to Prabha Energy Pvt. Ltd (PEPL), a unit of Deep Industries Ltd. The block in Bokaro would be developed by ONGC. The venture with PEPL is on a joint operatorship model and PEPL would make investments proportionate to its 25% interest in North Karanpura.

“We expect to begin CBM production by the later half of year 2017-18. The cumulative plateau production after development of all the four blocks is estimated to the tune of 1.7 million metric standard cubic metres per day (mmscmd)," said a spokesperson for ONGC in an emailed response.

ONGC was allocated nine CBM blocks, of which it holds four, located in Jharia, Bokaro, North Karanpura and Raniganj in West Bengal. The company had relinquished five CBM blocks, including Wardha, Satpura, Barmer Sanchor, North Karanpura (W) and South Karanpura because of poor potential on the basis of data generated during exploration.

The company said it has proposed to sell its gas at the market discovered price as provided in its CBM contract. It has maintained that since it was isolated in the case of these stand-alone blocks, it faced many concerns and, therefore, wanted to rope in a joint operator. So far, it has spent about 510 crore on the four CBM blocks.

“ONGC has taken concrete steps to discover CBM in the country and is currently operating in four CBM blocks. In view of the mammoth and time-bound task, it has decided to farm-in experienced partners to execute the operations, the process for which is in advanced stages. It will not be prudent to divulge more details at this stage," ONGC said in an emailed response.

In 2012, after ONGC first sold a 10-25% stake in these blocks, it was forced by the petroleum ministry to cancel the bids and go for international bidding. Later that year, it went for a rebid and, in 2013, allotted stakes in the blocks.

However, in 2014, Dart Energy, which had been awarded a 10-25% stake in four ONGC blocks, decided to surrender the stake, citing the tough conditions of doing business in India. Dart Energy has since shut Indian operations.

ONGC cancelled its agreement with Great Eastern Energy Corp. Ltd (GEECL), to which it divested a 25% stake in the Ranigunj CBM block. GEECL ONGC is the operator in Raniganj north block with 74% stake; Coal India Ltd (CIL) holds the rest. In Jharia block, ONGC holds 90%, while CIL holds 10%.

ONGC is also the operator in Bokaro block with 80% stake and Indian Oil Corp. holding the rest. After farming out 25% stake to PEPL in North Karanpura block, ONGC’s holding in the block reduces to 55%. Indian Oil holds the rest.

Currently, GEECL’s Raniganj (South) and Essar Oil’s Raniganj (East) are the only two blocks under production. Reliance Industries will begin CBM production in the April-June quarter of this fiscal year.

While Essar Oil is selling CBM gas at $3.06 per mBtu, GEECL is selling at $10.45 per mBtu. Essar Oil is producing 850 mmscmd of gas from its block and GEECL is producing 15.26 million standard cubic feet per day of gas. GEECL reports output in standard cubic feet as opposed to the standard cubic metres that Indian companies use.

GEECL has a higher pricing as its floor price was approved in 2008 which is valid for the life of the contract, i.e., 2036.

CBM contracts are on a revenue-sharing model and not on cost recovery like other contracts. CBM contracts provides for arms-length free market pricing. This is also in line with the new marginal field and hydrocarbon and exploration licensing policies announced by the government. Gas pricing for CBM, however, could change going forward. Oil minister Dharmendra Pradhan had last December said the government is looking at a new pricing regime for CBM to help monetize the clean energy source.

By 2017, CBM is likely to contribute 5% of national gas production, Pradhan said last month.

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