ONGC to buy Cairn pie in two blocks for $135m

The gas block in the Bay of Bengal lies next to the Krishna Godavari (KG) block where Reliance Industries struck a large reservoir of gas a few months ago.

"ONGC has signed an agreement with Cairn for farm-in in certain assets of Cairn, participation of Cairn in two exploration blocks of ONGC, and formation of a strategic alliance for future opportunities," the company said in a statement issued here.

It said that as per the understanding, Cairn will, in turn, pick ONGC's 30 per cent interest in block GV-ONN-97/1 onshore northern India and CB-ONN-2001/1 onshore Gujarat, with an effective economic date of September 30, 2003.

ONGC, which is currently focussed on upstream oil and gas exploration and production business but is stepping into refining and petro product marketing, will acquire the Scottish energy major's 90 per cent stake in deep-water exploration block KG-DWN-98/2, 15 per cent exploration interest in block CB/OS-2 and a 10 per cent interest in the Lakshmi and Gauri gas fields. Cairn owns 100 per cent in the KG block.

Around 1.4 trillion cubic feet of gas reserves have been discovered in the block, but the Scottish firm has not been able to develop it.

After the acquisition, ONGC will become the operator of the KG basin block, subject to regulatory approvals. Cairn has also reported several discoveries there, including the 'N' and Annapurna gas discoveries as well as the 'M' and 'P' oil fields.

The net reserve potential is equivalent to at least 200 million barrels of oil. There is a proposal to undertake active drilling on block KG-DWN-98/2 in 2004.

The chief executive of Cairn Energy Bill Gammell was quoted in the statement as saying: "The farm-out of discovered and producing interests is consistent with our strategy of both creating and realising value from exploration success. The transaction also significantly augments our onshore acreage position in India."

ONGC chairman and managing director Subir Raha said, "These transactions will synergise the competencies of ONGC and Cairn, and enhance our cost-efficiencies."

The Lakshmi gas field commenced production in November 2002 and average sales from the field during the first half of 2003 were 106 million standard cubic feet of gas per day.