ONGC counts benefits of crude oil's drop

Company says drop in crude oil prices has helped reduce operating expenditure for exploration in shallow waters by 30%

State-run Oil and Natural Gas Corporation (ONGC), the country's largest exploration and production company, is making the most of the drop in crude oil prices by renegotiating service contracts with drillers and others.

ONGC says the drop in crude oil prices has helped reduce operating expenditure for exploration in shallow waters by 30 per cent. “Hiring charges in the case of vessels, rigs and barges have come down,” said a senior official, helping offset the drop in crude oil realisation. “If there is a drop of 30 per cent, it is a big amount for that particular vertical. Suppose we need 50 vessels to operate in the Western Offshore field; if we hire 25 vessels for the next five years at a lesser cost, it can bring down the total cost.”   

Since last August, crude oil prices are down by about 50 per cent. ONGC saw a 41 per cent drop in its gross realisation to $63.8 a barrel in the June quarter. On the other hand, there was a 91 per cent fall in its portion of subsidy burder share, to Rs 1,100 crore. This resulted in a net realisation of $58.9 a barrel from $47.2 a barrel in the same quarter last year. With the drop in crude oil prices, rig prices have come down by 30 per cent.

“In some other markets, rig prices have fallen by 50 per cent. The situation is grim in the industry,” said a senior official with Jindal Drilling, on condition of anonymity.

ONGC mainly uses conventional and premium rigs. The cost of conventional jack-up rigs was $80,000 a day till January 2015. It is now below $60,000 a day.

The cost of premium jack-up ones has come down to $85,000 a day from $110,000 a day in September last year. This means savings of Rs 12,00,000-15,00,000 a day for each rig at ONGC (at an exchange rate of Rs 60 a dollar).  

While the rates of vessels are down from $25,000 per day to $16,000 per day, that of barges is down from $16,000 to $10,000 per day. This means savings of Rs 21,00,000-24,00,000 a day for each rig, vessel and barge, at an exchange rate of Rs 60 a dollar. In the long term, this reduction in cost will help a lot.

“Due to the slowing construction market, at least in South East Asia and other parts of the world, oil services companies are offering a much cheaper rate. We are also firming up our long-term service contracts for three to five years,” added the ONGC official.