BW Real 500: Access To Energy

Sometimes it pays off when you are contrarian. In early 2016, the oil and gas sector, especially the exploration and production (E&P) companies, faced a crisis as crude oil prices plummeted to as low as $30 a barrel, the lowest in a decade. For a company like ONGC which contributes around 70 per cent of domestic production, this was indeed a serious crisis. But the team led by chairman D. K. Sarraf decided to walk the talk rather than wait and watch nervously.

While the crude oil prices were low, the hiring charges of inputs that are used to explore and produce crude oil like drilling rigs, which are one of the main machines used for oil and gas exploration and development, were high. Today, the hiring charges for jack up oil rig is less than $50,000 a day. “Globally, no one had explored in the E&P industry. But ONGC took a contrarian view to invest and capitalise on the situation. We fought the fall in crude oil price by becoming efficient and aggressive, as the outlook for crude prices was bleak. Under this theory, the board approved the highest single investment project of $5.076 billion (Rs 34,000 crore) in March 2016. This was just after three months when the prices were rock bottom at $30 (a barrel). Hence, a happening year for ONGC in terms of capital investment,” says Sarraf. With crude prices now moving beyond $55 a barrel, the bet seems to have paid off.

“We took a calculated decision of the development of project of Cluster 2 of KG-DWN 98/2 (Krishna Godavari basin deep water block) under NELP (New Exploration Licensing Policy) and expect to start gas production from mid-2019 and oil production in Q2 of 2020, once FPSO comes on stream (floating equipment that processes oil),” he adds. The crude oil production from this project will be 16.89 per cent of ONGC’s current oil production and gas production from the project will be 27.60 per cent of current gas production of ONGC. The planning, development and approval work will start for Cluster 3 in 2017.

In March 2016, ONGC acquired an 80 per cent stake in Gujarat State Petroleum Corporation (GSPC) gas field off India’s east coast. The legal documentation of the acquisition is expected to happen in the next three months. This is a challenging task as the reservoir is HPHT (high pressure high temperature) with lot of H2S, CO2, making the reservoir porous.

For 2017, the plan is to concentrate on the completion of projects. “The Prime Minister gave a challenge to set a target to reduce import dependence for hydrocarbons (oil and gas) by 10 per cent by 2022. This will have to be achieved during the period of increasing oil consumption, which means production and restructuring of the entire industry. We have documented a road map to implement strategies in 2017,” adds Sarraf. Another fully commissioned project with an investment of $ 4 billion in OPAL project (ONGC Petro Additions) in Dahej, Gujarat is one of the biggest naphtha cracker projects, a dual feed cracker that can feed naphtha and C2-C3.

Globally, ONGC Videsh acquired 26 per cent of Vankorneft in Russia, a subsidiary of Rosneft. It will have a total production of 5 million tonnes of oil in addition to gas production. Back home, ONGC launched a Rs 100-crore startup fund to ignite new ideas in the oil and gas field and will provide support facilities such as seed capital, mentoring market linkage and follow ups.