Deepwater, unconventional gas figure in India ONGC’s growth blueprint

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• on August 2, 2018
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India’s Oil and Natural Gas Corp. is pursuing a two-fold strategy of pushing deepwater projects and venturing into gas production from unconventional sources, as lower upstream costs provide an opportunity to spark growth. Shashi Shanker, ONGC’s chairman and managing director, told S&P Global Platts in an exclusive interview that some of the oil and gas sector reforms undertaken in recent years — both on production and pricing issues — would also open up more opportunities.

“We think it is a good time to lock in the cost savings because of the services sector’s cost deflation, particularly in deepwater. This will be crucial for development of the Krishna-Godavari offshore fields,” he said. After many years of either stagnant or declining production, ONGC, which accounts for more than 70% of India’s oil and gas output, is witnessing a revival in production.
While its crude oil and condensate production rose marginally to 22.31 million mt in 2017-18 (April-March), from 22.25 million mt in the previous fiscal year, its total gas production rose 5.8% year on year to 24.61 Bcm in 2017-18, from 23.27 Bcm in the previous year, Shanker said.

The company aims to spend about $4 billion annually over the next few years to speed up upstream projects. “The problem of high import dependency is a real worry for all stakeholders in the energy sector. We can mitigate the situation through higher domestic production. This will go a long way towards meeting the ambitious target of reducing hydrocarbon imports by 10% by 2022,” Shanker said.

KEY FOCUS

He said that ONGC was aggressively venturing into deepwater and high-pressure, high temperature (HP-HT) areas. “Our single largest project is Cluster 2 development of KG-DWN 98/2, which is under the advance stage of execution,” Shanker said. The Cluster 2 fields lie in deepwater KG-DWN-98/2 Block, which is located off the shore of the Godavari Delta and covers an area of nearly 7,300 sq km off the KG basin. Shanker added that the development of the Nagayalanka block was under implementation, while it was actively working on the Madanam block. The Daman Development project had started contributing gas output, which is expected to increase further this year.

“Also, the exploitation of gas from coal bed methane and other unconventional sources are key focus areas. ONGC has already started development of CBM Blocks in Jharkhand. It is expected to commence commercial production shortly,” Shanker said. He added that the initiative of the government to introduce the Open Acreage Licensing Policy would also help the company to boost its production prospects. “We will also need to accelerate the development of discovered fields. In addition, the alternate gas pricing approach will also help in monetization of many discoveries, which are held up because of adverse economics,” Shanker said.

In 2017, India announced its new Open Acreage Licensing Policy that allows bidders to carve out areas where they want to drill. The auctions are part of an overhauled exploration licensing policy that allows pricing and marketing freedom for operators, and is a move to a revenue-sharing model, under which the government gets a share of the revenue from the moment production begins.

SYNERGY

This year ONGC agreed to buy the government’s 51.11% stake in state-run Hindustan Petroleum Corp Ltd. Shanker said the combined entity would help to absorb shocks arising out of market fluctuations. “There are two major advantages of having integrated supply chains. The combined entity will have exposure across commodity cycles wherein downturn in one could be offset by upswing in the other,” he added.

The combined entity is expected to produce about 35 million mt of crude oil. In addition, it will also have a combined annual refining capacity of 40 million mt as well as 15,000 retail outlets, he added. After Rosneft in 2016 transferred an 11% share in Vankorneft to ONGC Videsh in a deal valued at $930 million, OVL’s stake in the project rose to 26%. And earlier this year, Abu Dhabi National Oil Company awarded a 10% stake in Lower Zakum concession to an Indian consortium led by OVL.

“Our overseas operations are also on a strong footing especially after we had acquired important stakes in Vankorneft Russia and Zakum field in UAE,” Shanker said. Commenting on the market outlook, Shanker added that although crude oil prices had recovered from very low levels on the back of OPEC-driven output cuts, there were still a lot of factors that could contribute to volatile prices.
“There is still no certainty on the level of prices. Supply disruptions in Libya, Venezuela and Iran have kept the price volatility high. Other factors like the US trade war with China and rising US production could change the dynamics of the market,” he added. Pavol Demitra Jersey

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