Companies & Sectors
ONGC’s new CMD inherits big profit and bigger responsibilities!

The new CMD is faced with the legacy of the on-going reservoir issue with Reliance. He also needs to pay attention to ONGC Videsh’s operations and expansion

State-run Oil and Natural Gas Corp (ONGC) is India's single largest oil and gas explorer, whose production of oil in 2012-13 amounted to 26.12 million tonnes (against 26.92 mt in 2011-12) and gas to 25.33 billion cum (cbm) in 2012-13 (as against 25.51 cbm) in 2011-12.

 

According to TK Sengupta, ONGC's new director (offshore), based on the current plans and blocks that they have, they may be able to reach 100 mmscmd of natural gas by 2017-18. This they hope to obtain from their eastern and western gas fields, where gas has already been discovered. Many areas are under serious exploration, and ONGC hopes that they may strike it rich.

 

Although ONGC recently discovered two gas fields in the Mahanadi basin,

ONGC officials feel that even the proposed increased and revised rate of $8 per mBtu may not be workable in this block. In fact, it is felt that even at $11 per mBtu, assuming a 10% margin, it may not be worthwhile pursuing this exploration further.

 

Effective 1st April, the new gas price has been fixed at $8 per mBtu, against the current rate of $4.2, much to the dislike of all the consumers. Although the government has announced the rate, one does not know what legal obstacles that some consumers may resort to.

 

In any case, based on the revised price of gas at $8 per unit (mBtu), after paying a dividend to shareholders and providing for dividend tax, ONGC will be richer for Rs5,200 crore, and the revenue will reach Rs16,000 crore according to Dinesh K Sarraf, the new chairman and managing director (CMD). While this may be a happy state of affairs, there are few works on hand that needs Sarraf's continuous attention not only in India, but overseas as well, where ONGC's overseas arm, ONGC Videsh Ltd (OVL) operates.

 

Early this year, OVL acquired an additional 12% participating interest in Brazil's deepwater offshore block, in Campos basin, for $561 million, thus increasing their holdings to 27%. The balance of 73% is held by Shell. This additional purchase has been a lucky break because of the pre-emption rights exercised by old partners (both OVL and Shell) prevented Sinochem Group (of China) that had shown keen interest in the block! Although the production started in 2009, progress has been incrementally increasing and is said to reach 35,000 barrels of oil equivalent (boepd) by 2014.

 

OVL has been inroads in pre-partition Sudan, way back in 2003 where it has invested about $ 2.5 billion in petroleum exploration and production in land block No: 5 and offshore block No: 15. While traces of gas been found in block No: 5, exploration is yet to start in block No: 15. Readers may be aware of the serious problems that staff of ONGC faced due to the political turmoil there, where situation is slowly returning back to normalcy.

 

Investments made in Venezuela and Mozambique will also add to OVL's gas resources overseas. In Siberia, OVL are also working on Shale gas deposits and may seek expertise to assist in that area.

 

Back at home ONGC, as reported earlier in Moneylife, struck gas at a well at Noha in Damoh district of Madhya Pradesh in 2012, and two years down the line have discovered gas in four wells near Jabalpur. Further, appraiser wells are being drilled to assess the commercial viability.

 

In addition to all these activities, ONGC is also engaged in trying to get the best out of ageing old wells and increase production in existing blocks.
 

The new CMD is also faced with the legacy of the on-going reservoir issue with Reliance, where both the parties are working together to find out if, due to the proximity of the blocks, whether RIL has been drawing gas from ONGC's wells. Since the reservoir is deep down in the bowls of the earth, it is believed that such thing can happen; the matter is under investigation and likely to be settled in due course, possibly by a government appointed arbitrator.

 

With these data in the background, couple of interesting issues can be raised for a debate and for practical and realistic suggestions.

 

Since CMD Sarraf has stated that the estimated profit, after paying dividend and tax on dividend, will be Rs5,200 crore, what can ONGC do, for its corporate social responsibility (CSR) spending? For one thing, is it possible for ONGC to make a special dispensation in terms of price and offer certain quantity of gas to fertiliser manufacturers, if approved by the Government? Also, think in terms of committing the new gas discoveries to be assigned for such similar noble causes?

 

Secondly, will the Government come forward to realistically demarcate the blocks, leaving adequate "no man's land" between allotted parties, as the reservoir of one may be easily accessible to the neighbour, as it appears to have happened in the case of Reliance and ONGC?

 

They must take special care when NELP X is announced!

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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