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ONGC leaves Great Eastern Energy in the lurch

World Coal,

Energy exploration major, ONGC, has cancelled its agreement with Great Eastern Energy Corp. to sell the firm 25% farm-in rights for its Ranigunj coalbed methane (CBM) block in West Bengal, India.

Pressure from Coal India Ltd appears the key motivation for ONGC cancelling the sale. Coal India is the other partner in the CBM block, and is believed to have told ONGC that it is a competent authority to develop and operate the block.

The decision might delay the planned IPO of Great Eastern – India's first CBM gas producer.

"We have received a letter from ONGC deciding to call off the process of awarding 25% participating interest in Ranigunj North CBM block without assigning any reason," Y K Modi, chairman and managing director of Great Eastern Energy, said.

Long-running saga

While ONGC, which has a controlling stake of 74%, has not cited any reason for cancelling the deal, dna claimed that Coal India, which owns the balance 26% stake, has been insisting that it be given the responsibility of developing the block and not the private parties that ONGC has selected to expedite the development process.

This, incidentally, is a reversal of Coal India's earlier insistence to exit the project following alleged non-cooperation from ONGC.

"Coal India has conveyed to ONGC about the intention of retaining 26% participation interest from this block from development phase onward in pursuance to the decision of the board. The matter regarding operationalisation [sic.] issues and future course of action was deliberated by [the] board, wherein it was observed that there was a lack of transparency from ONGC for sharing information and the board directed Coal India to withdraw from joint operations," Coal India disclosed in its annual report for 2014.

Modi said Great Eastern Energy has written to ONGC, saying its decision is arbitrary and unreasonable, as the CBM developer – as well as other private sector companies – were selected through a tendering process.

"ONGC has not rejected our bids but has annulled which is not right and is against the terms and conditions stated by ONGC while inviting the proposals," Modi said.

Great Eastern and also other parties, such as Australian firms Dart Energy and Deep Industries were selected in May 2013 as successful bidders for three CBM blocks of ONGC.

The public sector petroleum explorer then decided to sell 25% in Ranigunj and North Karanpura blocks each and another 35% in its Bokaro block.

Following this, the parties were in discussion with ONGC for execution of a farm-in related and joint operatorship agreement, which were not formalised before the oil exploration major decided to call off the pact.

ONGC decided to rope in private sector players experienced in CBM extraction, as the project was too big to undertake them on its own.

"In view of the mammoth and time-bound task, ONGC has decided to farm-in experienced partners to execute field operations, process for acquisition of which is in an advanced stage," it said in its annual report.

"The development plans for all the blocks has been submitted and approved by the steering committees. Nearly 400 wells and 2000 hydro-fracturing jobs would be carried out in the coming 4 – 5 years as per timelines of the CBM contract," the report said.

Great Eastern in March received final approval of the Securities and Exchange Board of India for its draft prospectus.

Edited from various sources by Sam Dodson

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