ONGC to buy Cairn India's 10% stake in gas-discovery block

State-owned Oil and Natural Gas Corp ( ONGC) today said it will buy 10 per cent stake of Cairn India in a gas-discovery block that sits next to Reliance Industries' prolific KG-D6 area in the Bay of Bengal.

"That (buying Cairn India's 10 per cent stake in Block KG-DWN-98/2) has been agreed in our last board meeting," ONGC Chairman and Managing Director Sudhir Vasudeva told reporters here.

Cairn India had made four discoveries in the Krishna Godavari basin block KG-DWN-98/2 and in 2005 wanted to sell 100 per cent of its stake in the area to ONGC. But ONGC bought only 90 per cent as it wanted to utilise Cairn India's expertise and knowledge in exploiting the resource in the block.

But the two firms have not been on agreement on issues like the optimum way of developing the four pre-2005 discoveries and six subsequent finds.

Sources said there was a big gap in understanding of the resource with Cairn India feeling ONGC's estimates of the blocks holding an in-place volume of 25.61 million tons of oil and 197 billion cubic metres of natural gas were grossly over-estimated.

It felt the large programme that ONGC was drawing was not justified and choose to exit the area.

Vasudeva said ONGC will pay whatever past cost Cairn India had invested in the block as past cost. Cairn's share of past cost comes to USD 47 million.

Cairn had some months back written to ONGC saying "the hither-to discovered oil and gas resources in the block are only marginal to non-commercial, because of their small size and the potential high development costs due to water depth versus the prevailing gas prices."

ONGC proposes to invest over USD 7.3 billion to produce up to 30 million standard cubic metres per day of gas.

Before selling 90 per cent out of its 100 per cent stake and giving away operatorship of the block, Cairn made four discoveries in the area -- Padmavati, Kanakdurga, N-1 and R-1 (Annapurna).

Subsequently, ONGC made six significant discoveries -- E-1, A1, U1, W1, D-1/KT-1 and the first ultra-deepwater discovery UD-1 at a record depth of 2,841 metres.

The block is divided into a Northern Discovery Area and Southern Discovery Area.

The NDA comprises discoveries like Padmawati, Kanadurga, D, E, U, A, while the ultra deepsea UD find lies in SDA.

Even ONGC has acknowledged that the NDA discoveries are small to marginal and cannot be developed on a standalone basis due to high deepwater development costs.