GSPC deal fires up ONGC for tough fields

Readymade Infrastructure Gives A Big Boost

The proposed $1.2-billion acquisition of Gujarat government-owned 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 hydro-fracking, 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.

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