Firms partner in Mexico Gulf, why can’t ONGC and GSPC?

Giving more credence to reports that ONGC is looking at acquiring a majority stake in the Gujarat government-owned GSPC’s 1,850-sq km KG Basin block, KG-OSN-2001/3, petroleum minister Dharmendra Pradhan said on Tuesday: “Yes, they (ONGC and GSPC) are talking to each other. If ONGC and GSPC can do a joint development, the exploration cost would come down.” Pradhan, however, maintained that the outcome of the negotiations between the companies would be a “commercial decision”.

“If two exploration companies competing against each other can work together in the Gulf of Mexico and cut down their cost of production, why can’t it happen in India?” he asked during the Indian Express Group’s Idea Exchange programme.

On May 9, FE reported that the deal between ONGC and GSPC was likely to be completed within the next few months and that ONGC was likely to acquire more than a 50% stake in the deal for a price anywhere between $2 billion and $2.5 billion.

While GSPC is in the midst of a political storm with the Congress party alleging that the Rs 20,000 crore spent by it so far has been a waste of resources since there is very little gas in the block, the minister reiterated that the Comptroller and Auditor General (CAG) has never said that there is a ‘scam’ in the exploration of the KG Basin block by GSPC, as alleged by Congress MP Jairam Ramesh.

The CAG, Pradhan said, has made two observations — first, the spending (to the tune of Rs 20,000 crore) could not make the project profitable and second, GSPC doesn’t have the technological know-how for developing the field. Neither did it undertake any due-diligence survey while going ahead with the project, the CAG said.

The BJP minister opined that the GSPC project was not economically viable because the previous UPA government “controlled the gas price and fixed it at $4.2 per mBtu (million British thermal units)”. This is despite the fact that the production sharing contract allows marketing freedom to the companies.

“GSPC wrote to the petroleum ministry and DGH (Directorate General of Hydrocarbons) that it is one of the toughest fields in the country and requires a gas price of more than $5 per mBtu to commercially produce gas. It undertook a price discovery exercise through bids and found that the gas could be priced at $8 per mBtu. It is the UPA government which kept the pricing under its control,” explained Pradhan.

The petroleum minister said that international consultant Gaffney, Cline & Associates certified reserves to the tune of 13-24 trillion cubic feet and the DGH has approved only the field development plan of cluster-I of the Deen Dayal Field (within the block). “Jairam Ramesh is misleading by taking into account only selective information,” he said.

Rebutting the Congress charge of very little gas in the block, GSPC has stuck to the gas-in-place estimate of 14.4 tcf of which 7.6 tcf is recoverable. Based on information provided to it by GSPC on its exploration so far, the DGH has okayed gas-in-place estimates of over 10 tcf and recoverable reserves of over 2 tcf.