India’s state-run Oil and Natural Gas Corp. (ONGC) has agree to pay almost $1.2 billion for an 80 percent interest in a gas field off the country’s east coast, as it looks to increase local gas production to serve energy demands and reduce imports.
ONGC, India’s largest crude oil and natural gas producer, will pay Gujarat State Petroleum Corp.’s (GSPC) $995.26 for its entire 80 percent participating interest and right to operate in deepwater block in the Krishna Godavari basin, it said in a statement. ONGC will also pay $200 million to GSPC towards future consideration for six discoveries other than Deen Dayal West Field, which will be adjusted upon valuation of the discoveries.
GSPC has already built significant production facilities like well head platforms, process and living quarter platform, onshore gas terminal, export pipeline for transporting treated well fluid from process platform to onshore terminal.
The trial gas production from Deen Dayal West Field has already begun – this is the largest discovery in the KG-OSN-2001/3 block, with estimated natural gas reserves of 1.1 trillion cubic feet.
ONGC will sign the farm-in agreement as well as seek government approval for the transaction.
“The acquisition… fits well with the strategy of ONGC to enhance natural gas production from domestic fields on a faster pace, more so with a goal to reduce import dependency of hydrocarbons by 10 per cent by year 2021-22,”ONGC said in the statement.
Upon successful completion of the transaction, ONGC will look to bring the field on commercial production along with the existing partners in the Block, the firm said.
The companies will share infrastructure and reduce costs in an area where both have spent or plan to spend at least $3 billion each. The deal is critical for GSPC, a company owned by the government of the western state of Gujarat, as it is at least four years behind schedule in starting commercial gas production despite having completed construction of a processing platform, gas pipeline and an onshore terminal.
ONGC said the acquisition will help it develop faster its discoveries in the Yanam and Godavari areas as well as gas discoveries in its KG-DWN-98/2 block.
ONGC contributes around 70 per cent of Indian domestic production. Its market capitalisation as of Friday was $36.5 billion. During the last financial year ending March 31 2016, it produced 57.38 million tonne of oil and oil equivalent gas (mmtoe).