 "D K Sarraf")
At a time when oil companies the world over are cutting spending on exploration and production, state-owned Oil and Natural Gas Corporation (ONGC) plans to not only continue with its minimum investment commitment but also increase it further. In an interview with Jyoti Mukul & Sudheer Pal Singh, Chairman and Managing Director DK Sarraf says the company will benefit from the hindsight in the Krishna-Godavari basin. Edited excerpts:
Since ONGC has received the D&M report on the gas migration from your KG blocks to the area operated by Reliance Industries Ltd, what are you recommending to the government?
According to the court order, the government has six months to decide. The report has just come to us. Whatever information the government wants from us, we are ready to give. We had given some comments on the draft earlier. I would not like to comment any further.
Would you say that ONGC along with RIL and Gujarat State Petroleum Corporation (GSPC) have not been able to perform in the KG Basin?
Each one of us has learnt from the success and failure of the other. RIL was the first, it had to start from a scratch. Both RIL and GSPC are struggling. ONGC is learning from them in terms of infrastructure and logistics and from our own lack of action but since we took more time, we are more knowledgeable. We can be accused of being slow but today we can talk more confidently. Those risk factors and disaster that has happened elsewhere, we are not likely to have them in our case. There is a positive side also. We have understood the basin and whosoever comes in the future will come with that learning. The future explorers will have less risk.
At the current level of gas price, is development of discoveries in the deep-water viable?
In KG 98/2, there are three clusters. In Cluster 1, there is dispute with RIL. Cluster 2 is in the centre and is divided in 2A for gas and 2B for oil. Earlier, our thinking was the production should start from April 2018 for gas but for oil, since we require FPSO (floating production storage and offloading) also and that would take some more time and hence production will start later.
We have realised that the FDP (field development plan) is not viable at today's oil and gas prices. So, a cost re-engineering is going on. Once the response from DGH (Directorate General of Hydrocarbons) is available, we will see where we stand. But our gut feeling is that at the current oil and gas price and more so with the new price from April 2016, the project may not be economically viable as per the RoR threshold. We have already asked the government to take a relook at the gas price for future development from deep-water fields. We are asking for extension of premium also to deepwater fields, which are already discovered but are to be developed in future. We are sure the government would look at our request positively. The FDP we have submitted is for 17 mmscmd of gas and 75,000 bpd of oil.
Are other existing and upcoming projects of ONGC viable at the current gas price of $3.8 per mBtu?
On an overall basis, we are okay for the existing gas production and it is a profitable business. But some of the fields may not be profitable at this price. But in already producing fields, we cannot stop the production. The concern is for the future business of the company. But when crude prices go up, gas prices will also rise and these things may become better.
How is the low oil price impacting the company?
Around 70 per cent of our production comes from nominated blocks, while production sharing contract (PSC) and value-added products account for the rest. For nominated blocks, the realisation is close to $40 per barrel. It would be the same level as last year on an annual basis. For the other 30 per cent, the decline in price is adverse. This is partly offset by the favourable foreign exchange variation and also because of the reduction in cost of service.
Is ONGC following the global trend of cutting down on capex or is that the PSC regime does not allow you to do this?
We are not withholding any investment. Whatever cut in capex will happen, it will be because of cost saving. In this business, investments are not done based on today's price. Decisions are taken based on a long-term price. We will invest more than our commitment in the minimum work programme. Our capital expenditure is likely to be higher at Rs 31,500 crore this year from Rs 29,997 crore last year.
ONGC's production has remained flat for some time. What are the expectations for the current financial year?
Our production was falling for the last eight-10 years at the rate of 2.5 per cent per annum. We could arrest this fall in 2014-15. Our crude oil production from nominated and blocks under production sharing contracts is estimated to rise to 26.1 million tonne against 25.9 mt last year. This would be coming from Western offshore mainly.
The industry, including ONGC, is asking for a reduction of the cess charged on crude production. How concerned are you?
The demand makes sense. The cess is Rs 4,500 per tonne currently. This was set when the oil price was more than $100 per barrel. In addition to this cess, we have to pay 20-per cent royalty on crude. So, there is hardly anything left for the producer. And to be fair to both the parties, the producer and the government, it needs to be linked to the price. We pay more than Rs 10,000 crore annually as cess. We have made a formal request to the government. There has been a deliberation also at the level of the ministry of finance and the petroleum ministry. We did represent our case there along with other companies. They fully understood the point.
Is ONGC comfortable with revenue sharing model in the open acreage policy?
I have always been saying even when I was in ONGC Videsh that revenue sharing was far better in the Indian context because of the ease of doing business. When the government decides on approval, there can be delays. In PSC regimes, investment and cost approvals were required. In the new regime, oil companies will be free to take their own decisions. Once there is revenue sharing there will be hardly any clearances on the business side.
