ONGC to buy out GSPC's KG block stake for $1.2 b

State-owned Oil and Natural Gas Corporation (ONGC) has signed definitive agreements to buy out debt-ridden GSPC’s entire 80% stake in KG-basin natural gas block for $1.2 billion. “Subsequent to board approving the deal on February 23, we have now signed farm-in and farm-out agreements,” a senior company official said.

The company will close the deal and pay Gujarat State Petroleum Corporation (GSPC) the money after regulatory approvals like government nod for transfer of PI (participating interest) and change of operatorship are secured. “We are hopeful that the deal will be closed in April,” he said.

ONGC will pay $995.26 million for three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another $200 million will be paid for six other discoveries for which GSPC has been finalising an investment plan to bring them to production. Jubilant Offshore Drilling and Geo Global Resources (India) hold 10% stake in the block.

Originally, GSPC had offered ONGC its 50% stake in the block together with operatorship, but the state-owned firm was not interested. Subsequently, GSPC offered its entire 80% stake in the block, and on December 23, last year, ONGC agreed to acquire the same for $1.2 billion. Two months later, the board approved the acquisition. Besides the payout to GSPC, ONGC will have to pay for the entire development cost of the six discoveries, which may run into at least a couple of billion-dollars.

GSPC, with a debt of Rs 19,716.27 crore as on March 31, 2015, has so far made nine gas discoveries in the Bay of Bengal block. Of these, three — KG-08, KG-17, KG-15 commonly known as Deendayal West (DDW) fields — have been approved for development.

But against an approved field development plan cost of $2.75 billion, GSPC has seen a huge cost overrun, incurring $2.83 billion as on March 31, 2015.