Now, ONGC has been pulled up by the Comptroller and Auditor General (CAG) for not focusing on its core competency. The public sector exploration major is also being criticised for the mismatch between its strategic objectives and planned targets.

In its report on Hydrocarbon Exploration Efforts of ONGC, tabled in Parliament on Tuesday, the CAG noted that ONGC did not place the desired emphasis on its exploration activity. This is not for the first time that ONGC has been told that it was not focussing on discovering oil and gas. It was also criticised for being tardy in monetising its discoveries that contributed to low production.

The CAG had audited ONGC’s performance for the years 2007-08 to 2010-11.

“Coupled with the low priority on exploration are the anomalies in the MoU (annual memorandum of understanding signed between the nodal ministry and the company), target-setting and reporting as well as performance measurement (through Reserve Replacement Ratio) which can potentially mislead stakeholders,” the auditor said.

The company showcases a healthy reserve replacement ratio, while production continues to remain static, the report said.

“A review of the reserve replacement ratio as a performance parameter for ensuring performance in exploration efforts is warranted,” the CAG said.

ONGC mainly operates in its producing fields to meet both reserves accretion and production targets.

“The actual reserve accretion through exploratory wells, wildcat wells and appraisal wells account for only 13 per cent to 38 per cent of the MoU targets set for the company by the Ministry for Petroleum & Natural Gas. The finding cost was also understated by $4.84 to $21.71/barrel of oil equivalent,” the report noted.

Finding cost is calculated by dividing the exploration cost by ultimate reserve accreted. Barrel of oil equivalent is used to summarise the amount of energy that is equivalent to the amount of energy found in a barrel of crude oil.

“Lack of adequate efforts and results in new fields, coupled with ageing of producing fields, is a matter of concern for future,” the CAG stated.

The Government auditor said that the Ministry for Petroleum & Natural Gas and ONGC should ensure that the company’s exploratory efforts/activities, which is its core concern, receives due attention.

“A comparison of discoveries in the New Exploration Licensing Policy (NELP) regime shows that despite its large acreage and rich experience in exploration and production sector, ONGC made fewer discoveries than new entrants like Gujarat State Petroleum Corporation and Reliance Industries Ltd,” it noted.

In 74 per cent of highly prospective blocks acquired by ONGC under NELP I to V rounds, it could not complete its work commitments, the report said.

ONGC had acquired 89 prospective blocks out of 120 up to VIII round of NELP and made only 11 discoveries in eight blocks.

CAG said while external benchmarking of performance was not done, ONGC had recorded the lowest efficiency in drilling compared with private sector players as well as public sector Oil India, which led to non-achievement of work commitments and payment of liquidated damages.

Several deficiencies in operations – procurement, hiring, contracting, etc – were noticed. The company had adequate financial resources which it could not utilise and sustained heavy attrition in core manpower which led to operational challenges, the report said.

“Though ONGC operates in a field of cutting edge technology, it did not have a system of independent assessment of its technical capacity which fails to assure its stakeholders,” the report said.

(This article was published on August 28, 2012)
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