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ONGC Said to Develop Arabian Sea Gas Field by 2016, May Spend $4 Billion

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, plans to produce natural gas from discoveries off the country’s west coast in four years in a move that may boost its output of the fuel by 13 percent.

The reservoir in the Arabian Sea is located about 50 kilometers (31 miles) from the federal territory of Daman and may hold more than 100 billion cubic meters of gas, or about half the size of India’s largest deposit, said three people with direct knowledge of the matter, asking not to be identified because the information isn’t public.

“The reserves are significant,” said Deepak Darisi, a Mumbai-based analyst with LKP Shares & Securities Ltd., who advises investors to buy ONGC shares. “ONGC has the technology to produce from the Daman field on its own.”

ONGC is stepping up exploration and acquiring stakes from rivals in Indian waters at a time when declining output at home has curbed gas supplies to Asia’s second-fastest growing major economy. The New Delhi-based company said yesterday it will buy BG Group Plc’s stakes in two Bay of Bengal areas, following the purchase of Cairn India Ltd.’s 10 percent holding in another block.

The ONGC stock fell 0.8 percent to 264.70 rupees at 11:56 a.m. in Mumbai trading, compared with a 0.5 percent increase in the benchmark Sensitive Index.

The state-owned oil and gas producer may spend $4 billion to develop the deposit, one of the people said. ONGC Chairman Sudhir Vasudeva didn’t answer two calls to his mobile phone seeking comment.

Mumbai High

The deposit lies near the more than three-decade-old Mumbai High fields, which produce about 43 percent of India’s crude oil and 37 percent of the nation’s gas. ONGC plans to build a terminal about 100 kilometers north of Mumbai to receive and process the gas, the three people said.

The area may produce as much as 8 million cubic meters of gas a day at its peak, boosting output by 13 percent, and may start in about four years, one of the people said.

ONGC produced 1.9 billion cubic meters of gas in November from domestic fields, according to oil ministry data. The company plans to increase its domestic output to 100 million cubic meters a day by April 2015, Chairman Vasudeva has said.

The company will buy BG’s stakes in two blocks in the Bay of Bengal’s Krishna Godavari and Mahanadi basins, S.V. Rao, ONGC’s director in charge of exploration, said yesterday in New Delhi. BG, which retains stakes in a producing venture and an exploration project in the country, will pay ONGC $50 million for failing to fulfill its drilling commitments, he said.

BG Assets

BG, the U.K.’s third-largest natural-gas producer, is withdrawing from the KG-OSN-2004/1 block in the Krishna Godavari basin and the MN-DWN-2002/02 license in Mahanadi. It retains a 30 percent stake in the KG-DWN-2009/1 permit.

“BG Group is not in the process of exiting India,” Mark Todd, a company spokesman, said by e-mail. “As we’ve noted previously, BG Group keeps all of the assets in its global portfolio under review.”

The company said in April 2010 it had withdrawn from a deepwater block in India, KG-DWN-98/4, citing a lack of clear documentation on the validity of a production-sharing contract.

BG has a 30 percent stake in the Panna-Mukta and Tapti fields in the Arabian Sea in partnership with ONGC and Reliance Industries Ltd. It also successfully bid for the MB-DWN-2010/1 license off western India in a 2010 auction, and has yet to be awarded the contract by the government, its website shows.

BG’s interests in India include the supply and distribution of liquefied natural gas. The company agreed in September to sell as much as 2.5 million metric tons of LNG to Gujarat State Petroleum Corp. for 20 years, starting in 2014.

Separately, BG is seeking buyers for its 65 percent stake in Gujarat Gas Co., a utility operating in the west Indian state. It owns a 49.8 percent stake in Mumbai-based Mahanagar Gas Ltd.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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