Shares of ONGC gained 2 per cent after the company said it is in talks to buy a stake in GSPC's KG basin block and has hired US-based consultant Ryder Scott to assess natural gas reserves.
Reacting to the development the stock of ONGC rose as much as 1.92 per cent and was the best Sensex performer.
"I have never spoken on GSPC earlier. But I think today I can speak to on GSPC. We have been talking to GSPC for acquiring certain percentage of their (Deendayal) field and the talks are on," ONGC Chairman and Managing Director D K Sarraf said.
Since the BJP-led government came to power at the Centre, the Gujarat government firm GSPC has been seeking to sell a majority stake in its KG-OSN-2001/3 (Deendayal) block in Bay of Bengal to ONGC to avoid defaulting on loans.
ONGC initially was not keen to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and the asking price for the stake was not commensurate with the returns.
"We did some technical study on the field and post that we thought that it would be better (to appoint a consultant) because it is quite a difficult field," he said.
Refusing to detail the size of the deal being discussed, he said the size of investment would be "significant".
"We have appointed a technical consultant Ryder and Scott for evaluation of the field," he said. "We are talking to GSPC for acquisition of certain percentage of their field."
Asked if an overseas partner may be roped in, he said, "as of now no."
Ryder Scott Petroleum Consultants has been asked to evaluate gas properties in the GSPC block and independently certify the reserves quantities, the source said.
GSPC was to begin gas production from the block in 2013 but after sinking in USD 3.6 billion it was found that gas reserves are one-tenth of 20 trillion cubic feet claimed in 2005 and that too is technically difficult to produce.
In the process it has amassed Rs 19,576 crore of debt, on which interest cost was Rs 1,804.06 crore in 2014-15, according to the CAG. And against this its revenue was Rs 152.51 crore in 2014-15.
Sources said GSPC has been doing trial production of a very small volume of gas from August 4, 2014 and has not yet reached commercial production and in absence of revenue commensurate with the debt servicing obligations it risks becoming a defaulter.
To bail out of the situation, it offered to sell 50 per cent stake to ONGC, they said.
GSPC also wants ONGC to use its under-sea infrastructure for a fee.
ONGC has gas discoveries in a neighbouring block and GSPC wants gas from those to be routed through its Deendayal block infrastructure for onward transportation to the shore.
But the state-owned firm feels it was not technically feasible as its KG-D5 gas cannot be mixed with GSPC's gas which has high levels of sulphur and carbon dioxide content.
Also it is high-pressure and high-temperature gas.
(With inputs from PTI)