Total speculation on deal with GSPC for KG block

Vol 9, PW 23 (09 Mar 06) Exploration & Production

Gujarat Petroleum has categorically denied rumours that it is about to select Total of France as its partner for gas discovery block KG-OSN-2001/3.

Rumours are flying thick and fast in Gujarat that Total will farm-in to GSPCs gas discovery block KG-OSN-2001/3. Under discussion, we hear, is a deal that will see Total take 26%.

In addition, Total will pay GSPCs share of past costs and future CAPEX in return for operatorship. However, the government of Gujarat (GSPCs parent) will have some kind of controlling interest over the gas that the block will produce.

Total is no stranger to Gujarat. On 4th March 2004, it acquired a 26% equity stake in a LNG terminal at Hazira, making it the second largest shareholder after Shell.

Since then, says a source, Total has developed a good relationship with GSPCs political bosses. Contacted by this report, senior GSPC sources categorically deny any negotiated deal with Total, or anyone else.

Our board will approve a financial advisor sometime this week who will prepare an information memorandum for shortlisted companies, says a source. After that a dataroom will be opened and the shortlisted parties will be invited to visit.

Outside GSPC, others are sceptical. GSPC is not obliged to invite bids, we hear.

This is not a tender. They might be going through the motions of a bidding process just to keep up appearances.

GSPC made a presentation to DGH director general VK Sibal late last month to convey the logic underlying its confidence in the blocks promise. The geological model was presented to Sibal, we are told.

The first well (KG-1) was a parametric well meant to calibrate the model and show whether to drill in the north or south of the block. The well was dry but helped GSPC further understand the sub-surface geology.

The second well (KG-11) had a 2% chance of success but was also dry. Still, it helped GSPC fine-tune its model and understand how far rig Perro Negro 3 could withstand the high temperature, high-pressure sub-surface conditions of the block.