GSPC deal fires up ONGC for tough fields

READYMADE IN­FRA­STRUC­TURE GIVES A BIG BOOST

Resource Digest - - CONTENTS -

The pro­posed $1.2-bil­lion ac­qui­si­tion of Gu­jarat gov­ern­men­towned GSPC'S gas find off the Andhra coast has fired up ONGC to de­velop tech­no­log­i­cally tough dis­cov­er­ies that the state-run ex­plorer had put in the back-burner due to un­cer­tainty over re­turns match­ing in­vest­ments.

The ONGC board last month de­cided to buy debt-laden GSPC'S en­tire 80% stake in Deen­dayal West (DDW) field, clas­si­fied as HPHT (high pres­sure, high tem­per­a­ture) block, along with in­fra­struc­ture. Such dis­cov­er­ies are dif­fi­cult to pen­e­trate, and re­quire hy­drofrack­ing, which is com­par­a­tively a new tech­nol­ogy and not easy to op­er­ate off­shore.

“The ac­qui­si­tion of DDW brings econ­omy of scale for ONGC'S nearby HPHT dis­cov­ery. Such fields come with un­cer­tain­ties due to their tough geology. With DDW and its readymade in­fra­struc­ture, our projects will have enough vol­ume to jus­tify in­vest­ments. We will also be able to use DDW in­fra­struc­ture for pro­duc­ing gas from other dis­cov­er­ies nearby,” ONGC chair­man Di­nesh Ku­mar Sar­raf said.

He said the GSPC deal will bring value as ONGC will be able to use DDW'S in­fra­struc­ture worth $1.5 bil­lion for its other dis­cov­er­ies. “Look at it this way. ONGC will pay $995 mil­lion for GSPC'S stake, $200 mil­lion ad­vance for six other dis­cov­er­ies and will not take over any debt. The readymade in­fra­struc­ture, which takes years to build, makes our other medium-size dis­cov­er­ies in the vicin­ity at­trac­tive to de­velop,” Sar­raf said.

De­vel­op­ing HPHT dis­cov­er­ies re­quire big in­vest­ments that can­not be jus­ti­fied with­out as­sur­ance of match­ing re­turns. Since ONGC'S high pres­sure, high tem­per­a­ture dis­cov­er­ies are small or medium, it had cho­sen to put them on the back burner and in­stead in­vested in dis­cov­er­ies with promise of big re­turns.

Since de­vel­op­ing and oper­at­ing high pres­sure, high tem­per­a­ture fields will be new for ONGC, the com­pany is cre­at­ing a sep­a­rate divi­sion by club­bing all such blocks — both on land and off­shore — and mak­ing one ex­ec­u­tive di­rec­tor an­swer­able for their suc­cess or fail­ure. This ED will re­port to one di­rec­tor on the board, en­sur­ing a fo­cused ap­proach.

ONGC fields, in­clud­ing clus­ter of dis­cov­er­ies in their prox­im­ity, are cur­rently treated as sep­a­rate busi­ness units and put un­der the charge of an ex­ec­u­tive di­rec­tor rank of­fi­cer with sub­stan­tial fi­nan­cial pow­ers who re­ports to per­ti­nent di­rec­tor on the com­pany's board. This helps quick de­ci­sions in tune with typ­i­cal re­quire­ment of each as­set.

DE­VEL­OP­ING HPHT DIS­COV­ER­IES RE­QUIRE BIG IN­VEST­MENTS THAT CAN­NOT BE JUS­TI­FIED WITH­OUT AS­SUR­ANCE OF MATCH­ING RE­TURNS

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