BG exit deal with ONGC hits ministry roadblock

Vol 17, PW 5 (03 Oct 13) Exploration & Production

Everyone thought the deal was done, but as is typical in the Indian E&P sector, along comes the oil ministry with an objection, throwing everything into a tailspin.

This time it’s over a $50m cash pledge from BG willingly accepted by ONGC allowing the UK explorer to walk away from two KG and one Mahanadi basin blocks where it is a stakeholder: KG-DWN-98/4, KG-OSN-2004/1 and MN-DWN-2002/2. Cut to December 12 two years ago, when ONGC accepts (in writing) BG’s offer as full and final settlement of the UK explorer’s financial liabilities for unfulfilled drilling commitments at the three blocks.

Almost two years on, after examining ONGC’s request for endorsement of the deal, an oil ministry source tells us: “We think $50m isn't enough to fulfil the drilling commitment.” Probe further and it emerges the ministry believes BG should pay more than $45m for KG-OSN-2004/1 alone, the only block of the three still being explored.

The logic goes like this: ONGC promised to drill seven exploration wells during Phase-I under the Minimum Work Programme (MWP) at KG-OSN-2004/1 for which the consortium committed a minimum $100.17m. “As BG holds 45% in KG-OSN-2004/1 it should pay more than $45m,” adds another government official.

“BG should pay for its entire MWP commitment but BG wants to pay for just two wells and exit. How can the government allow this” A BG spokesman declined to comment, saying the firm has received no information on the subject from the oil ministry.