Will ONGC prove to be a knight in shining armour for the damsel in distress, Gujarat State Petroleum Corporation?

Though oil and gas industry is abuzz with the possibility of ONGC stepping in to help the GSPC, which is struggling in its east coast block, the public sector giant’s board does not share the same ‘enthusiasm’.

Commercial interest

“While it is true that GSPC has been exploring various options, no organised talks have taken place recently. Before looking at any project, we will have to keep in mind our commercial interests,” a senior ONGC official told BusinessLine .

The official further added that only when it is decided that the company is interested in the asset, there will be scope for discussion - whether it will be only technology support or equity participation, the official explained. However, industry trackers are quick to point out, being a public sector entity, ONGC could be pressurised into stepping in.

Incidentally, the east coast blocks of Reliance Industries and its partners, ONGC and GSPC are adjacent to each other. India’s east coast has thrown geological challenges for the oil and gas explorers and almost all have had to revise their initial output estimates.

Way behind

While RIL-BP-Niko have taken a hit from their producing KG-D6 block because of geological challenges, ONGC proposes to start field development work in its asset, and GSPC has not yet started commercial production though gas output from the three wells in the block started in August-September 2014. GSPC has sold the test gas to fertilizer player, Gujarat Narmada Valley Fertilizers and Chemicals Ltd.

GSPC has also been ticked off by the Comptroller & Auditor General of India in its latest report that the company did not act on the suggestions made in the board of directors’ meet of July 2010 to induct a strategic partner for the technologically challenging and capital intensive KG block.

Missed opportunity: CAG

This, according to the government auditor has resulted into technological issues remaining unresolved, commercial gas production could not begin causing huge borrowings and interest burdens. The CAG felt this was a missed opportunity for the company to bring in the new strategic partner and resolve the issues, as GSPC could have reduced their interest burden through greater equity infusion or seeking a financial partner.

The auditor had revealed that viability of field development plan was compromised by underestimation of costs, non-addressing of technological uncertainties, deficiencies in project implementation. GSPC holds 80 per cent participating interest in the block awarded to GSPC-Jubilant and Geo-Global Resources Consortium in 2003, while Jubilant and Geo Global have 10 per cent each.

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