Oil and Natural Gas Corporation (ONGC)’s plans to move out of the coal bed methane (CBM) business and focus on the conventional oil and gas exploration and production business may turn out to be a long haul. Forced by the Ministry of Petroleum and Natural Gas to cancel bidding for farming out CBM blocks, the company would now opt for international bids. However, existing suitors may not be interested anymore.
CBM is natural gas, trapped within coal formations. The gas is extracted by drilling holes into the seams that contain gas and are commercially unviable for mining.
UK-listed Great Eastern Energy Corporation (GEECL), Brisbane-based Dart Energy, and Essar Energy, which had earlier bid for the stake, may not participate in the re-bid. These companies, which are upset at the ministry’s intervention in the matter, told Business Standard re-bidding might be another long-drawn process, and they may run out of patience. “So far, we have not been informed of this re-bid and our information is only through the media. If it is true, it will tantamount to a waste of our time. In our view, there should be no re-bidding and they should decide, based on the current bids submitted and the credibility of the bidders, to begin production at the blocks at the earliest,” said Yogendra Kumar Modi, chairman and managing director, GEECL.
| HICCUPS AROUND CBM BIDDING |
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In an email reply, an Essar Oil spokesperson said, “Given the recent discussion in the public arena on CBM pricing, they (ONGC) may anticipate a different level of interest. Some who were interested before, may not be interested now.”
ONGC has been facing concern, as it has not been able to resolve land acquisition woes, the cycle speed of rigs, etc. In June, the company had decided to farm out 35 per cent stake in four of its CBM blocks — in Jharia, Bokaro, north Karanpura and south Karanpura — in Jharkhand and Raniganj in West Bengal.
ONGC is the operator in the Raniganj north block, with 74 per cent stake, while Coal India holds the remaining stake. At Jharia, it holds 90 per cent stake, while CIL holds 10 per cent.
At Bokaro and north Karanpura, too, it is the operator, with 80 per cent. In these blocks, IndianOil Corporation holds the remaining stake.
Sources said ONGC has decided to farm out majority stake in all the four blocks to Dart Energy.
According to ONGC estimates, the Jharia block holds about 85 billion cubic metres of gas reserves. While the north Karanpura block holds 62 billion cubic metres, Bokaro holds 45 billion cubic metres and Raniganj North holds 43 billion cubic metres of gas reserves.
“One, ONGC has no business to divide stake among players. Two, the way the ministry of petroleum is behaving is very frustrating. If international bidding takes place, that would be another long-drawn affair. We are not sure if we have that much patience. I don’t think I am interested in ONGC’s CBM blocks anymore,” said the chief executive officer of one of the bidding companies. “This has never happened in ONGC that the board has taken a farm-out decision and the ministry intervened and objected to it. Besides, ONGC is not a company to move things quickly. It has never called an international bidding…it is not in ONGC’s system,” he added.
The companies say calling for international bids may take a year. This means ONGC, which has been scouting for farm-in opportunities for faster exploitation of CBM resources, would have to wait longer to sell stake in the four blocks. Currently, ONGC has incidental production of 8,000-10,000 million standard cubic metres per day (mscmd) from the Jharia block.
Planned investment for the blocks is Rs 5,000 crore. Production from the blocks would increase 600-fold to six mscmd in 10 years.
The company has maintained since it was isolated at these standalone blocks, it faced many concerns and, therefore, wanted to bring in a joint operator. So far, ONGC has spent about Rs 510 crore on the four CBM blocks, which the winning bidder might have to cough up in proportion to his stake.
