ONGC Videsh Ltd, the overseas arm of state owned Oil and Natural Gas Corp (ONGC), can raise its stake in Kazakhstan’s Satpayev oil block to 35 per cent upon commercial discovery, a government official said on Monday.

OVL on Saturday signed an agreement with Kazakhstan’s national oil firm KazMunaiGas (KMG) to buy a 25 per cent stake in the Caspian Sea block.

“Under the agreement, OVL has a right to take another 10 per cent stake upon commercial discovery in the block,” the official said here.

OVL Managing Director, Mr Joeman Thomas, said the company will invest about $ 400 million over the next six years in exploration of oil and gas in the Satpayev block.

The company will pay $ 13 million as signing amount to the Kazakhstan government. Besides, it will also pay USD 80 million as one time assignment fee to KMG. On top of this, OVL has committed a minimum exploration investment of $ 165 million and an additional optional expenditure of $ 235 million.

The Satpayev block is located in the north Caspian Sea and in proximity to at least four fields.

A peak output of 2.87,000 barrels per day (14.3 million tonnes a year) is envisaged from the 256 million tonnes of reserves estimated in the two prospective structures, namely Satpayev and Satpayev Vostochni (East).

Under Kazakh law, exploration and production contract can only be signed with the national oil company. The 1,582 sq km Satpayev block was in June last year awarded to KMG.

Kazakh law allows KMG to farm-out or assign up to 49 per cent of its interest to a foreign company. In Satpayev, KMG sold 25 per cent of its stake to OVL. KMG will hold the remaining 75 per cent and will be the operator of the block.

OVL has been seeking access to Kazakhstan since 1995 and signed an initial agreement with KMG in February 2005 for cooperation in the hydrocarbon sector.

At that time, Kazakhstan identified the Satpayev and Makhambet blocks in the Caspian Sea for giving 50 per cent stake in one of them to OVL.

However, in 2007, it reduced the stake on offer to 25 per cent on condition that OVL teamed up with steel baron Lakshmi N. Mittal, who has steel plants in that country.

The official said initial agreement for OVL and its partner Mittal Investment Sarl (holding firm of steel magnate Lakshmi Mittal) getting 25 per cent stake in the Satpayev was signed during Kazakhstan President Nursultan Nazarbayev’s state visit in January 2009.

But in November 2009, Mittal pulled out of the project and OVL decided to take the entire 25 per cent stake on its own.

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