ONGC needs JV partners, private field held up since ’96
While India continues to import 80% of its oil needs, the goings-on in the petroleum ministry continue to astound. The issue of whether Reliance Industries Ltd (RIL) should be allowed to charge the new gas prices after April 1, 2014, continues to hang fire and, as a result, so does RIL’s decision to invest more in new areas. Meanwhile, the Directorate General of Hydrocarbons (DGH) remains locked in a dispute on whether extra tests needed to be done to confirm RIL’s view that certain of its gas fields are commercially viable. By the time RIL finally agreed to do the drill stem test (DST), the ministry asked the company to give up the fields as it had not found gas in the time period stipulated for exploration—now, as FE has reported, the minister has intervened and given the company time to conduct the DSTs in the KG Basin. Between them, the fields are estimated to hold 0.8 tcf of gas, which is around a fourth that the famed D1/D3 fields are now estimated to hold. A similar DST dispute exists for other fields as well, though it is not clear why DGH should be more concerned than RIL considering the company can’t recover its investments unless it finds oil/gas. In the case of Cairn, though this is India’s best-producing oil firms, the ministry has yet to take a call on whether or not to extend its contract to allow the company to fully exploit the new reserves it has found. In terms of being bizarre, what best captures oil policy is the failure to sign a production sharing contract that was first given out in 1996. The petroleum ministry issued a letter of intent to Essar Oil for the Ratna-R series but, for a variety of reasons, and several trips to various legal officers of the government, the field remains in limbo even today.
If ONGC’s oil/gas output was rising, this could be condoned. But ONGC’s oil production remains in secular decline—production fell from 4.8 lakh barrels a day in January 2012 to 4.5 lakh barrels in September 2012 before rising marginally to 4.6 lakh barrels now. The larger problem, as FE pointed out yesterday, is that though ONGC finds new reserves each year, converting this to fresh production is taking a lot longer than expected. An analysis by Barclays points to an average of 23 months delay in each of 23 current projects—in the case of Improved Oil Recovery, the biggest delay is in Geleki (120 months) while, in the new fields, C-Series has a 54-month delay. Apart from the fact ONGC needs to get these fields going to counter the fall in output from current fields, the bulk of its gas finds are in deep/ultra-deep waters where it has no expertise of its own—yet, it is having little success in finding equity partners, possibly because of the way in which, as a PSU, it needs to function. Since ONGC still has the bulk of India’s oil/gas acreage, resolving this is of the utmost importance.