ONGC steps up east coast operations

Oil and Natural Gas Corporation (ONGC) has lined up a plan to start drilling on two shallow and two deepwater blocks on the east coast of India.

The company will start drilling on the Bengal offshore block, 80 km south of Sunderbans, in March, while shallow drilling at a block in Mahanadi basin in Orissa will start by June.

ONGC will start a third deepwater drilling in Mahanadi area in August-September, while a fourth deepwater block will be tested by the end of 2005.

These would be over and above ONGC's existing exploration programme for high prospective zones like Krishna-Godavari (KG) basin and Cauvery basin.

ONGC awarded the contract for G1-GS15 field offshore in KG basin to drill five production wells recently. The east coast of India had enormous prospect for oil and gas production in future, according to experts.

The west coast has extensively explored already and the east coast was the new focus area.

The CBM-BPM basin, based out of Kolkata, was now monitoring 17 blocks, the second largest number after Mumbai offshore basin.

The Kolkata basin had seven blocks in Mahanadi region, two in Andaman and two in West Bengal. "ONGC will start exploratory drilling at four wells in Sunderbans. The total cost earmarked for survey and drilling work is about Rs 500 crore. Overall, the budget for the first phase of work in this basin would be Rs 1,200-1,300 crore in the five-year period," A K Biswas, general manager (basin manager, CBM-BPM), said on Tuesday.

Besides, ONGC would complete survey work for the natural gas reserve found in the petroleum exploration licence (PEL) on-land block, Contai, in Midnapore district by March 2005. It has found minor quantity gas flow in a 13-meter layer between 2,850 metre and 2,863 metre depth of a well, drilled at Govindpur in Contai. It is now undertaking survey work in 70 sq km area using advanced data recording system. In Andaman basin, drilling works would be taken up after two-three years.

Meanwhile, Oil and Natural Gas Corporation (ONGC) is spending 93 per cent of its total capital expenditure of Rs 10,850 crore in the current fiscal on its core activities of oil and gas exploration and production (E&P), according to its chairman and managing director Subir Raha.

In a presentation to petroleum minister Mani Shankar Aiyar last week, Raha sought to dispel the notion that ONGC was "diverting money from E&P to other businesses" like fuel retailing, LNG, petrochemicals and power generation. Raha stated that of the Rs 12,915 crore capex in 2002-04, non-E&P activities got only Rs 1,466 crore, mostly for acquisition of MRPL.

In the current 2004-05 fiscal, only Rs 730 crore was being spent on activities to integrate its core E&P business with other segments of the hydrocarbon value chain.

Next fiscal, ONGC has planned Rs 10,740 crore of capex, of which only Rs 170 crore would be for integration purpose.

Aiyar and petroleum secretary S C Tripathi have time and again criticised ONGC for pushing for downstream business as there was large profit in it, but Raha refuted the allegation saying ONGC has undertaken the world's biggest seismic data acquisition campaign and the biggest deep water exploration campaign globally.

He cited the example of oil majors Exxonmobil, BP, Total, Shell, Chevrontexaco, CNPC, Petronas, Reliance and Sinopec, who had ventured into all activities of the hydrocarbon chain from E&P to refining, retailing and petrochemicals to say "we have no plan to diversify, except perhaps a subsidiary for self-insurance".

"Chasing the molecule is the only way to secure sustained growth. The intent is to squeeze the last cent from the molecule. Going forward, value addition increases, and risk decreases by multiples," Raha said.

Quoting management gurus Prahlad and Hammel, he said "core competence of McDonalds is not frying hamburgers... Core competence of Nike is not making shoes. Core competence of McDonalds is convenience... Core competence of Nike is merchandising."

"We submit core competence of ONGC is not exploration and production... Core competence of ONGC is knowledge of oil and gas business, better than anyone else in India.

"Core business of ONGC is exploration and production, and will remain so as evidenced by the corporate strategic plan which targets doubling of reserves to 12 billion tonne of oil and oil equivalent gas and improving recovery factor from 28 per cent to 40 per cent," he said.

To monetise assets, ONGC was improving production from existing fields, putting new discoveries and idle fields to production and investing in overseas assets.

He complained that while ONGC's requests for joint ventures (particularly in the areas of forward integration) have been blocked, approvals have been accorded to sister public sector units.