ONGC cancels CBM block sale to Great Eastern

Energy exploration major ONGC has cancelled its agreement with Great Eastern Energy Corp to divest 25% farm-in right to its Ranigunj coal-bed methane block in West Bengal.

Coal India Ltd (CIL), the other partner in the block, is believed to have prevailed upon ONGC to cancel the stake sale, arguing that it is a competent authority to develop and operate the block, sources said.

The decision might delay the planned IPO of Great Eastern, country's first coal-bed methane gas producer.

"We have received a letter from ONGC deciding to call off the process of awarding 25% participating interest in Ranigunj North CBM block without assigning any reason," Y K Modi, chairman and managing director of Great Eastern Energy, told dna, confirming the development.

While ONGC, which has a controlling stake of 74%, hasn't cited any reason for cancelling the deal, sources said CIL which owns the balance 26% stake has been insisting that it be given the responsibility of developing the block and not the private parties that ONGC has selected to expedite the development process.

This, incidentally, is a reversal of CIL's earlier insistence to exit the project following alleged non-cooperation from ONGC.

"CIL has conveyed to ONGC about the intention of retaining 26% participation interest from this block from development phase onward in pursuance to the decision of the CIL board. The matter regarding operationalisation issues and future course of action was deliberated by CIL board wherein it was observed that there was a lack of transparency from ONGC for sharing information and the board directed CIL to withdraw from joint operations," CIL had disclosed in its annual report for fiscal 2014.

Modi said Great Eastern Energy has written to ONGC, saying its decision is arbitrary and unreasonable as the CBM developer as well as other private sector companies were selected through a tendering process.

"ONGC has not rejected our bids but has annulled which is not right and is against the terms and conditions stated by ONGC while inviting the proposals," Modi said.

Great Eastern and also other parties like Australian Dart Energy and Deep Industries were selected in May 2013 as successful bidders for three CBM blocks of ONGC.

The public sector petroleum explorer then decided to sell 25% in Ranigunj and North Karanpura blocks each and another 35% in its Bokaro block.

Following this, the parties were in discussion with ONGC for execution of a farm-in related and joint operatorship agreement which were not formalised before the oil exploration major decided to call off the pact.

ONGC decided to rope in private sector players experienced in CBM extraction as the project was too big to undertake them on its own.

"In view of the mammoth and time-bound task, ONGC has decided to farm-in experienced partners to execute field operations, process for acquisition of which is in an advanced stage," it had said in its annual report.

"The development plans for all the blocks has been submitted and approved by the steering committees. Nearly 400 wells and 2,000 hydro-fracturing jobs would be carried out in the coming 4-5 years as per timelines of the CBM contract," the report said.

The decision to cancel the development agreement, then, will not only delay the project but has also put a question mark on the IPO of Great Eastern Energy.

Great Eastern in March received final approval of the Securities and Exchange Board of India for its draft prospectus.