Oil and Natural Gas Corporation, the country's largest oil and gas producer, is planning to sell 30 to 40 per cent each in two blocks in Vietnam to share the risks and drilling costs. ONGC [Get Quote] owns 100 per cent in the two deepwater exploration blocks.

"There is a proposal to sell stake in the two blocks we won in 2006 because the cost of drilling has gone up substantially. However, it is not yet finalised if we want cash or a swap agreement for the stake sale," said a senior ONGC official.

The buyer has not yet been finalised, the official added.

ONGC owns the blocks -- Block 127 and 128 in the Phu Khanh basin in offshore Vietnam -- through its overseas investment arm ONGC Videsh  Ltd (OVL).

The cost of data acquisition and drilling in Block 127 is expected to go up almost three times to $123 million from the earlier estimated $42 million. For the smaller Block 128, the cost is expected to rise more than two-fold to $77 million from $31 million.

OVL has already committed to spending $34 million in the second and third phases of exploration in both the blocks, over and above the investment committed for the first phase, which is currently on. "These projected costs are also likely to have gone up substantially," said the ONGC official.

Drilling costs have risen sharply over the last year as the price of crude oil has more than doubled in the last 18 months. This has resulted in a rush to secure equipment such as drilling rigs and seismic vessels and manpower, all of which are in short supply globally. This has raised costs.

OVL also holds 45 per cent in another offshore block (Block 06.1) in Vietnam in which gas has been discovered. BP Exploration Operating Company is the operator of the block and owns 35 per cent; and PetroVietnam, the national oil company of Vietnam, holds 20 per cent.

OVL is also likely to relinquish the Najwat Najem oil block in Qatar after it discovered that reserves in the block are low and not commercially viable. OVL had signed an agreement with the Qatar government in 2005 to appraise the Najwat Najem structure in which oil was discovered.