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View from the top: Looking through the lenses of Indian oil CEOs

ONGC steams ahead with oil, gas output revival despite low crude prices

By Sambit Mohanty

While many upstream companies globally are struggling with a third year of cuts in capital expenditure, India's Oil and Natural Gas Corp. is swimmingagainst the tide by keeping its capex unchanged.

Dinesh K SarrafIn fact, it aims to spend about $4 billion annually over the next few years to speed up upstream projects, in line with the government's goal of moving to a gas-based economy and cutting dependence on crude imports, Chairman and Managing Director Dinesh K. Sarraf said in an interview.

After many years of either stagnant of declining production, ONGC, which accounts for more than 70% of the country's oil and gas output, expects torevive both its crude oil and gas production in fiscal 2017-2018, April to March, compared with the previous fiscal year.

"I would say the worst is over for us and we are in for some good times. This will be the first year after, say after 6-7 years, when both crude oil and gas production will show recovery simultaneously," Sarraf said. "Last year, we saw only our gas output rising, but crude output was stagnant."

While ONGC expects its domestic crude oil production to rise to 22.57 million mt in fiscal 2017-2018, from 22.25 million mt in fiscal 2016-2017, it is eyeing a rise in domestic natural gas output to 24.03 Bcm from 22.09 Bcm in the same period. From its overseas projects, ONGC expects oil and gas output to rise to 13.66 million mt of oil equivalent in fiscal 2017-2018 from 12.8 million mtoe in the previous fiscal year.

"The reason for that is while we have maintained our capex -- unlike other global majors and national oil companies which have cut capex -- we are able to do more work since costs have come down. So, with the same amount of money, we can do more work. The cost of hiring a drilling rig today is less than half what it was when crude oil prices were very high," Sarraf said.


He said that since crude prices were low, ONGC was focusing on projects that can be monetized quickly.

"For example, in the western offshore [region], our exploration success has been very, very high. The infrastructure is already there and we know the region quite well. Therefore we are investing there. Just this month, we made a discovery in the western offshore -- a single well, which on the testing result, produced more than 3,300 b/d," he added.

ONGC five-year crude, gas production outlook

Sarraf added that in fiscal 2016-2017, ONGC made 13 discoveries onshore, of which eight were monetized in the same year. In addition, ONGC has been able to reduce the oil finding cost from $5.20/b in fiscal 2013-2014 to as low as $2.53/b in fiscal 2016-2017. It is expected to go down further.

"There is a big change in the mindset on how the government and ONGC want to push upstream output. Earlier, projects used to be discovered and were not monetized for as long as 20 years, keeping the potential idle for a long time," Sarraf said.

ONGC is firming up plans to develop the Kutch Basin following a few discoveries, Sarraf said, adding that it would be the eighth basin to be brought to production. The seventh was the Cauvery Basin in the state of Tamil Nadu, which came into production in the mid-'80s.

"From the time we approve the development plan of the Kutch Basin, we are confident of bringing it to production in about three years. That would be very significant for us," Sarraf said. "That will open up further areas for exploration."

ONGC had approved new projects worth $12.2 billion since fiscal 2014-2015, he said.

"Crude prices are still low. In addition, domestic gas prices have not been raised. It somewhat makes it difficult to make investment decisions. We have to factor in crude oil at $50/b for our project economics, compared with $70/b for some of our earlier project calculations," he added.


Highlighting the company's oil and gas production targets over the next five years, Sarraf said that while domestic crude output was expected to reach 26.43 million mt by fiscal 2021-2022, natural gas production was expected to soar to 41.54 Bcm.

"A lot of new projects that will come online in the coming years will be gas-based. Therefore, the rate of our gas output growth will be much higher, compared with that of crude oil," Sarraf said.

Referring to Prime Minister Narendra Modi's vision to reduce dependence on crude oil imports by about 10% by 2022, Sarraf said ONGC had been given a production target by the government and was on track to achieve it.

"But efforts are ongoing in other areas of energy too. They will also play a part in achieving the entire target, such as solar and biomass, as well as improving the efficiency of our refineries," he added.

Russia's largest crude oil producer Rosneft last year closed a deal to transfer an 11% share in one of its key East Siberian assets Vankorneft to India's ONGC Videsh Ltd., in a deal worth $930 million that brought OVL's stake in the project to 26%.

Vankor is Russia's second-largest field by production, accounting for 4% of the country's output. It produces at an average of 400,000 b/d. OVL's equity share from the Vankor field stands at about 104,000 b/d.

Sarraf said that ONGC was not aggressively pursuing any overseas projects after the Vankorneft deal, but would be selective in expansion overseas.

"As far as the global outlook for oil is concerned, we expect the [price] recovery to be slow. A lot more sources are coming up in the oil and gas sector. OPEC is trying to control production, but is only partially successful in its efforts. And demand is not responding much. The US is producing more and more. This means the oil price recovery won't be very fast," he said.

S&P Global Platts India CEO Series: Mukesh Kumar Surana, HPCL | Sudhir Mathur, Cairn | Sashi Mukundan, BP | Dinesh K. Sarraf, ONGC | B. Anand, Essar Oil | Sanjiv Singh, IOC

Interviews in this series were conducted and first published by S&P Global Platts in September 2017, except for the IOC interview which was conducted and published in November 2017.

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