ONGC, Cairn India & BG Group Rejig Stakes in Krishna-Godavari Blocks

The Krishna-Godavari basin is witnessing hectic merger and acquisition (M&A) activity with state-run ONGC, Cairn India and Britain's BG Group reshuffling their stakes in exploration blocks in the basin, which is home to India's biggest gas find.

ONGC is buying stakes from Cairn India and Britain's BG. While BG is exiting one block in the KG Basin, it remains keen to pick up 30% in another block operated by ONGC in the region, industry sources said.

ONGC has decided to pick up a 45% stake held by BG Exploration and Production India (BGEPIL) in the shallow-water block KGOSN-2004/1. ONGC already holds the remaining 55% stake.

“BGEPIL has offered to assign its 45% participatory interest in the shallow water block KG-OSN-2004/1 to ONGC. ONGC Board has approved assumption of 100% share in the block. There is no cash consideration in the transaction, which, however, requires the approval of government of India,” ONGC said in a statement in response to a query from ET.

The shallow-water exploration block, spread over an area of 1,131 sq km, was awarded to ONGC and BGEPIL in the sixth round of Nelp. “From a pure economic consideration, it does not make sense for BG to continue in this block as this is the only acreage it has in the area, whereas ONGC has a larger presence in and around the block and it can develop these fields in an integrated fashion,” a senior ONGC official, who had direct knowledge of these developments, told ET.

BG, responding to an email query, said: “BG has a longterm relationship with ONGC that we value highly, covering both exploration and production projects. BG Group keeps all the assets in its global portfolio under review and will not comment on any market speculations.”

BG's exit from this block would not impact its interest in 30% stake in another block of ONGC, KG-DWN-98/2. “The above development is not going to have any impact on BGEPIL's proposal for participation in KG-DWN-98/2,” ONGC said.

Walter Simpson, CEO, BG India had told ET in September: “We had sent ONGC a proposal detailing our interest in picking up an equity stake in their Krishna-Godavari DWN 98/2 block about a year back. We are waiting for ONGC's response and continue to remain very keen to partner in the block.”

The KG-DWN-98/2 block is seeing a lot of M&A activity. Industry sources said ONGC's board had recently approved proposal to buy Cairn India's 10% stake in this block for $47 million. ONGC is the operator of this block.

Cairn India, a minority partner in the block, had made four discoveries there before selling its 90% stake to ONGC in 2005. Subsequently, ONGC made six discoveries and the its first ultra-deep water discovery, UD-1, at a record depth of 2,841 metres in this block.

ONGC is planning to invest $7.7 billion to develop it. Industry experts say this block has the potential to become the second-largest offshore asset in the country after Reliance Industries' prolific KG-D6 block, which is located next to ONGC's asset.

Cairn India feels ONGC has overestimated the reserves in the block. ONGC said the difference in assessment of reserves had not influenced Cairn's decision. “Global energy majors worldwide are reshuffling their exploration portfolios so Cairn could be doing the same,” said a senior ONGC official who had direct knowledge of the development.

“It is too premature to talk right now especially as Cairn India still needs to discuss and close the matter with Cairn Energy,” said another senior ONGC official.

Last June, Cairn had written to the petroleum ministry saying, “We believe that the hitherto discovered oil and gas resources in the block are only marginal to non-commercial because of their small size and potential high development costs due to water depth.”