Tucked away in the CAG report castigating PSU oil major ONGC for poor exploration and production performance is a real gem: the ministry of petroleum and natural gas (MoPNG) thinks corporate social responsibility (CSR) is a lot more important than finding new oil and gas! For 2010-11, the Memorandum of Understanding (MoU) by which the government judges its PSUs gives a weight of 4.5% for ONGC’s core activity of exploration as compared to 5% for CSR. The logic behind the falling weight given to exploration—10% in 2007-08—though not spelled out in the report, could possibly be that while private firms like RIL and Cairn can be relied upon to find more oil and gas, the ministry can’t tell them which charitable activity needs active promotion! So, while ONGC probably deserves the stick it gets from the CAG, the MoPNG deserves a far bigger stick and owes a big explanation to the PMO which is trying to get India’s oil and gas production up.
The CAG points to serious shortfalls in ONGC’s exploration activities—less than half its basins are able to meet the 2D and 3D survey targets—and says ONGC’s track record is poor relative to its private sector counterparts, more so given its experience as well as the huge acreage under it. The CAG hints at the problems ONGC faces as a PSU—the CMD’s position was vacant for 406 days in 2007 and 245 days in 2011, the offshore director wasn’t appointed for 242 days in 2012 and the chief of the deepwater drilling unit wasn’t in place for 231 days in 2009-10. There is, however, no word on the impact of the huge delays in getting other government clearances (ask RIL about this!)—it took ONGC over two years to get permission to drill exploration wells in the KG Basin area.
What is a lot more damning, and the government has continued to ignore this for years, is the manner in which ONGC measures its data. According to ONGC, its reserve replacement ratio (the ratio of fresh reserves discovered to the oil and gas produced every year) is greater than one, but if this is so, the CAG asks, why is it that ONGC’s annual production continues to fall. The bigger critique, the CAG underscores, is that ONGC’s reserve accretion data is very different from that measured by the Directorate General of Hydrocarbons (DGH)—the difference is around 50-60% and is largely due to ONGC hiking the estimates of reserves of its existing fields based on some re-interpretation. While ONGC has its explanation for the difference—it says DGH doesn’t include its pre-NELP fields—you cannot have a situation where ONGC and the oil regulator have such dramatically different numbers. If ONGC’s output was rising steadily, this wouldn’t matter as much, but it’s quite another story with output falling steadily. But if ONGC’s owner values CSR and all the socially useful activities that come along with this—providing cars to joint secretaries in the ministry, for instance—over the PSU finding more oil and gas, why blame the management?