ONGC gets gas price guarantee from Gujarat, set to pave way for conclusion of GSPC deal

ONGC gets gas price guarantee from Gujarat, set to pave way for conclusion of GSPC deal

ONGC has been given an assurance by the Gujarat government that the national explorer will get at least $6/mmBtu for the gas from the Deen Dayal West (DDW) block in the Krishna Godawari basin in the first year of production. The assured price will see staggered increments every year  it will touch $6.9/mmBtu in the fifth year and remain at that level during the remaining life of the asset. The move to offer a price guarantee is expected to help ONGC and state government-owned Gujarat State Petroleum Corporation (GSPC) to conclude the announced acquisition of the latter’s 80% stake in the asset by ONGC by March 31. Under a deal signed earlier, ONGC will pay debt-laden GSPC $1.2 billion for the stake. Gujarat’s move would make the deal more palatable to ONGC, analysts said.

Given that the current ceiling price of $5.3/mmBtu for the gas from difficult fields DDW is a high-pressure-high-temperature-low-permeability area  the state government would have to bear cost of about $0.7 per mmBtu of gas produced in the first year of production. As DDW’s recoverable asset is now estimated at around 1 trillion cubic feet (tcf), the guarantee will cost Gujarat $700 million (R4,680 crore at Thursday’s exchange rate) during the life of the asset, if the price differential of 0.7/mmBtu stays unchanged. Read More…

Credit By : Financial Express.com

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