ONGC, Oil India bank on private players to boost production by end of FY20

Private players may be brought in to boost production at 66 small oil and gas fields by state-run Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) by the end of this financial year.

At least 23 companies had shown interests in a pre-bid meeting held on September 17.  An industry source said international service providers like Schlumberger, Baker Hughes,  Weatherford International, and Halliburton were keen to be part of this project. 

“ONGC had already floated bids for 64 of such fields in August. We expect to wind up the bidding process by December 20 this year and contracts are likely to be in place by March 2020,” said Shashi Shankar, chairman and managing director of the company. The project is part of a strategy to bring down import dependency on crude oil by 10 per cent by 2022.

“Indian companies do not have technical and human expertise to do this. Hence, it is likely to be one of these foreign players,” he said. 

The 64 fields are spread across 17 onshore contract areas and are believed to have total in-place oil and oil equivalent gas volume of about 300 million metric tonnes of oil and oil equivalent gas (MMTOE).

For private players to be selected on the revenue-sharing basis, complete marketing and pricing freedom to sell oil and gas on the arm’s length basis will be given. Also, there will be a reduction of 10 per cent in the royalty rate for the additional production of natural gas. The government had opted for bringing in private players for production enhancement after the country’s crude oil and natural gas production remained static for years.

The country’s import dependency increased from 78.3 per cent in 2014-15 to 83.7 per cent in 2018-19.

One of the concerns that the companies participated in the pre-bid meeting raised was regarding the mode of determining baseline production,  beyond which revenue will be shared.

 ONGC is likely to come up with revised criteria for bidding,  addressing this along with other concerns of the companies, by November 10. 

A senior company official said it has lined up Rs 1.5 trillion as capital expenditure for the next five years, of which around Rs 45,000-50,000 crore will be for exploration activities. During FY19, the company had capex Rs 29,449 crore; it has planned Rs 32,921 crore capex for the current financial year.

Besides, 25 projects are already under execution with more than Rs 83,000 crore worth of investment. Of this, around 15 projects are expected to bring oil and gas gains to the tune of 180 MTOE during its lifecycle.

According to the data available with the Petroleum Planning and Analysis Cell (PPAC), India’s crude oil production dropped 4.2 per cent in 2018-19 to 34.2 MT, compared to 35.7 MT during 2017-18.

On the other hand, natural gas production increased only by 0.7 per cent to 32,873 million metric standard cubic meters (mmscm) during the period under review.