Mumbai/New Delhi: India is pushing its biggest oil and gas producer to collaborate and share infrastructure with a smaller, indebted provincial government run explorer to accelerate the development of offshore fields.
As part of the possible closer cooperation, Oil & Natural Gas Corp., which is developing fields in the Krishna-Godavari basin off the nation’s east coast, is in talks to buy a stake in an adjacent block operated by Gujarat State Petroleum Corp., oil minister Dharmendra Pradhan said in an interview on Monday. A deal would allow the companies to share pipelines and reduce costs in an area where each has spent or plans to spend at least $3 billion.
“They are closer projects and they can create value by producing affordable gas through joint development," Pradhan said in Mumbai. “There is nothing wrong in developing both the projects simultaneously."
The deal is critical for GSPC, which is four years behind schedule in starting commercial gas production despite having completed construction of a processing platform, gas pipeline and an onshore terminal. To develop the block, GSPC sought a strategic partner in 2010 without success, according to a report this year by the country’s federal auditor.
“The company did not act upon the proposal for inducting strategic/financial partner at an appropriate time in spite of the high costs and technological issues," the Comptroller and Auditor General of India (CAG) said in the report.
GSPC, which was targeting peak gas output of 5 million metric standard cubic meters a day, has invested $3.4 billion in the block as of 31 March 2015. It made a profit of ₹ 23.7 crore ($3.6 million) on sales of ₹ 11,040 crore in the financial year ended 2015, according to the CAG report on the unlisted company. It had debt of ₹ 19,700 crore.
“The very fact that GSPC could not work out a solution for so long means there are complexities which could be difficult to address," said Sachin Mehta, an analyst at Centrum Broking Ltd. “There are synergies for ONGC but until we know the details of a deal, like valuations and extent of collaboration, it is difficult to comment."
ONGC’s potential collaboration with GSPC could help it reduce costs in the Krishna-Godavari basin, where companies such as Reliance Industries Ltd. have seen output dwindle 85% since 2010 to 9 million standard cubic meters a day. In March, ONGC approved an expenditure of $5.07 billion to develop its block. It plans to start producing gas from its block in 2019 and oil from 2020.
ONGC chairman D.K. Sarraf declined to comment when asked about the plan on Monday. GSPC didn’t respond to multiple e-mails seeking comment.
GSPC, owned by the Gujarat state government, has 80% stake in the KG block. Jubilant Offshore Drilling Pvt. and GeoGlobal Resources (India) Inc. hold 10% each. Bloomberg