Subsidies make eighth of ONGC’s fields unviable

Given over 12% of Oil and Natural Gas Corporation’s (ONGC) ultimate recoverable reserves are located in marginal oil and gas fields that are becoming unviable to produce from, the PSU major is counting on an exemption from subsidy contribution to make the economics for these work, ONGC chairman SudhirVasudeva said. Oil ministry officials say that they are considering the request.

In other words, ONGC wants international crude oil prices for oil sold from marginal fields, and does not want to contribute $63 per barrel towards subsidies as it currently does on oil sold from all its fields in India. ONGC holds around 336 million tonnes of oil equivalent (mtoe) of oil and gas ultimate recoverable reserves in 165 marginal fields of its total 2,764 mtoe reserves.

Vasudeva said the company has made requests to the oil ministry to exempt it from subsidy but has so far not received the go-ahead. ONGC is struggling to produce from marginal fields due to the realisation being low, approximately $42 per barrel.

The cost of production from marginal fields is higher than the company’s average realisation of $42-43 per barrel of oil.

Vasudeva pointed out that it needs a minimum price of $65 per barrel, without which the investments planned for marginal and ageing fields will not be commercially viable.

Marginal fields were allotted to ONGC before the start of the new exploration licensing policy (NELP) rounds began in 1999. These fields hold large quantities of hydrocarbons but are not able to produce economically on a standalone basis.

The marginal fields consist of 64 fields on production including the D 1 fields, C series, B 22 cluster and North Tapti fields. The remaining fields are either under exploration, monetisation or hub development. ONGC has created several clusters to jointly develop these marginal fields. ONGC is developing 37 marginal fields through 13 projects with an estimated investment of Rs 34,223 crore. Production from the fields under projects G-1 & GS-15, B-22 Cluster, B-46 Cluster, C-Series, North Tapti and additional development of the D-1 field has already commenced. Seven out of these 13 projects are expected to be completed this year and the remaining five in subsequent years.

Vasudeva said that apart from marginal fields, the company is dealing with ageing fields for which it is constantly undertaking improved oil recovery (IOR) and enhanced oil recovery (EOR) schemes. The company has sought tax sops on the ageing fields. Around 75% of ONGC’s production today comes from just 15 fields. This includes fields like Ankleshwar and Rudrasagar which were discovered in 1961 and started producing in that year. Also, its main producing asset, Mumbai High, which discovered in 1974, is still producing.

Currently, ONGC offers oil retailers a discount of $63 per barrel on crude oil sold to oil retailers IOC, BPCL and HPCL for selling diesel, kerosene and LPG at discounted levels. The government compensates retailers for the remaining under-recovery that retailers incur. Over the last two quarters the company has had an average realisation of around $42 per barrel, leaving it with small margins on its oil business where the cost of production stands at around $40 per barrel.

Subsidy burden prevents ONGC, OIL from investing in discoveries

Public sector explorers such as ONGC and Oil India are unable to drill for nearly 70 million tonnes of crude oil, as heavy subsidy burden prevents them from investing in discoveries. “They need more money to monetise some of the discoveries. There are certain discoveries viable at at least $65/barrel. If they get only $40-42/barrel, they cannot develop them,’’ Petroleum Secretary Vivek Rae told mediapersons on the sidelines of a CII Business Partners conference. These discoveries are in Bombay High and KG basin in the East Coast. Nearly 70 million tonnes of crude oil resources are trapped in these acreages. According to Rae, it makes sense to invest $65/barrel and get that oil out, rather than spending $105/barrel to import. “There is need to review the burden sharing formula,’’ he added.

  Similar Posts

Share it