The Hindu Business Line : ONGC in drive to enhance hydrocarbon output

New Delhi, April 28 ONGC, which has been under pressure to enhance oil and gas production from its existing fields, including marginal fields, has chalked out a strategy to try and add more than one billion tonnes of in-place reserves during the Eleventh Plan period. The company’s crude oil production for 2007-08 is estimated to be 25.919 million tonnes (26.051 mt in 2006-07) and natural gas production (provisional) is 22,335 million standard cubic metres (22,442 mscm).

Mr R.S. Sharma, Chairman and Managing Director of ONGC, in an interview to Business Line reiterates that exploration and production (E&P) continues to be the core activity of the company and outlines the strategy drawn up to enhance oil recovery/improve oil recovery (EOR/IOR) particularly from marginal fields.

The marginal fields are in the news with everyone from the Government to industry talking about them. Why is there so much interest?

The term marginal fields, in the context of E&P business, are those discovered fields which are considered uneconomical for development at one point of time under prevailing fiscal, technology or regulatory regime. Recent oil price rise has given a new dimension to field development economics and many of the discovered fields which were considered to be marginal are no longer marginal. I prefer to categorise these fields with reference to ONGC’s business as discovered fields. Expeditious monetisation of oil and gas assets is a priority, and any structured initiative in this regard is bound to attract attention.

ONGC has often been pulled up for not doing enough in its core activity. What are the investments planned for marginal field development and enhancing oil recovery?

We reiterate that E&P of hydrocarbon is our core activity and all our endeavours are focused on this. During the Tenth Plan period 2002-07, we invested more than Rs 44,000 crore (out of total Rs 47,492 crore) for domestic E&P activities — mainly for exploratory efforts and to maintain production levels. It gave desired results as the company is able to maintain oil and gas production levels despite natural decline in the matured fields. During Tenth Plan we contributed more than 41 per cent of the total in-place reserves of India. Since the last three years we have maintained reserve replacement ratio (RRR) more than one, which is commendable even vis-a-vis performance of global majors. Moreover, we were able to improve recovery factor to more than 30 per cent in 15 major fields through innovative IOR/EOR schemes.

What about marginal fields or discovered fields?

We identified 109 such discovered fields and, as a strategic pursuit, took conscious decision to monetise all these fields expeditiously. As far as development of these discovered fields is concerned, ONGC has drawn up firm plans to put a maximum number of such fields on-stream during the Eleventh Plan period. Feasibility studies for monetisation of 25 of these fields with investment of approximately Rs 14,000 crore have already been completed and these are under various stages of implementation. During the Eleventh Plan, these fields are expected to contribute approximately 30 mt of oil and oil equivalent gas. Our Eleventh Plan outlay for domestic E&P activities is Rs 71,795 crore, more than 94 per cent of the total plan outlay of Rs 75,984 crore. We expect to add more than one billion tonnes of in-place reserves during the plan period and maintain production at current level. The range of our activities is much more than any other player. As such we do not agree with the statement that ONGC is not doing ‘enough’.

What are the strategies ONGC has adopted to make marginal fields economically attractive? How many have been monetised and how many are under the process?

The design for the development of these fields is unique, that is, judicious deployment of our own resources along with roping in service providers. Out of 109 fields which were identified as marginal fields at one point of time, 87 have already been monetised or are in the process — 67 through in-house efforts and 20 through service contracts. Engagement of service providers was mainly to address resource mobilisation for expeditious development of the identified fields. The remaining 22 fields have also been prioritised for development and suitable action will be initiated soon.

ONGC and the Directorate General of Hydrocarbons (DGH) were asked by the Petroleum Ministry to review the existing mechanism for development of marginal fields. Has the mechanism been formulated?

Status of ONGC’s marginal fields was reviewed at the ONGC Strategy Meet last year. Pursuant to that, further evaluation was done by DGH and the Ministry of Petroleum and Natural Gas, along with ONGC. It was unanimously agreed that these 22 identified fields would require further dispensation in terms of fiscal concessions to make their development commercially viable. It was also agreed to submit a proposal to CCEA for approval to develop these 22 fields as per NELP-VII terms.

Does ONGC plan to continue with the bidding process for awarding development works to service contractors, or is there a change in strategy?

There is no change in strategy. We always prefer transparent bidding processes and the proposed policy for development of marginal fields will also be based on such mechanism.

There were talks of removing the cap of $35 a barrel on crude pricing from ONGC’s marginal fields, making the development of these fields by service contractors lucrative. Has any decision been taken to this effect?

All along we have offered lucrative terms under service contracts and were able to attract a large number of service providers. The new policy is under finalisation, as such it would not be appropriate to talk about the proposed fiscal terms; however, we are sensitive to the expectations of our service providers. We intend to work out win-win proportions for all the stakeholders while maximising the value of our assets.

There was also a proposal to give the same fiscal dispensation to marginal fields as NELP blocks — royalty rate on oil at Rs 528 a million tonne, nil cess or Rs 900 a tonne for discovered blocks. What is the current status? Will it not make production from the fields more unviable?

The package of concessional fiscal terms for developing these marginal fields is currently under finalisation in the Ministry. The proposal thereafter would be submitted to CCEA.

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