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Dinesh K Sarraf , Managing Director of ONGC’s overseas arm, ONGC Videsh Ltd, Oil and Natural Gas Corporation (ONGC)

02 Jun 2014

He took over as the chairman and managing director of the country’s most profitable company Oil and Natural Gas Corporation (ONGC) on March 1. Before this, Dinesh K Sarraf was the managing director of ONGC’s overseas arm, ONGC Videsh Ltd. He has replaced Sudhir Vasudeva who was denied a post-retirement one-year extension of service even though oil minister M Veerappa Moily had strongly pitched for it. Following are some extracts from his media interaction as ONGC’s new boss.

His top priority.

Sarraf says his priorities are clear. He wants to bring the promising block in the Krishna Godavari (KG) basin to production. This deep-water block lies north of the basin next to Reliance Industries’ KG-D6 block and has reserves of roughly two trillion cubic feet of gas and 117 million metric tonne of oil. “We are expecting peak production of 25-30 million metric standard cubic meters per day (mmscmd) gas and 70,000 barrels of oil every day,” he says.

What gas price hike means for ONGC.

As per Sarraf, revenues of ONGC will grow by Rs 16,000 crore and net profit by nearly Rs 9,600 crore when domestic gas prices will increase to $8 per unit from $4.2 per unit. However, most of this additional revenue would flow back to the government, the company’s largest shareholder, in the form of higher taxes, royalty and dividend and the company’s net retention will be Rs 5,200 crore, when the price rise happens. The new CMD says while the price of $8 per unit appears to be substantial, it is not sufficient to make all discoveries by ONGC viable. There were still few discoveries in the Mahanadi basin that are not viable at this price and would need a higher price of around $11 a unit, he adds. “Some of the gas may not be produced even at $8 a unit and will be monetised at a later stage,” he says.

On claims made by Aam Aadmi Party (AAP) that the cost of gas production is just $1.

“The cost of production is difficult to directly say (as it varies from field to field, depending on components such as the size of the field, whether it is deepwater or onshore, etc). Also for a producing field, it would be very less.” There is no fixed cost of production and the average for a gas field is $3-4 per unit. ONGC’s cost of gas production is about $4 per unit and the company “hardly makes any profit” at $4.2 rate, says Sarraf.

On increasing domestic production.

Sarraf also counters allegations that ONGC is not doing enough to increase production and says it has been increasing at around 8 per cent. ONGC expects a peak gas output of 25-30 million standard cubic metres per day (mscmd) from its block off the East Coast. Gas production from the deepwater block in the Krishna-Godavari basin will begin in 2017.

On the government’s decision to ask ONGC to pick up a 5 per cent stake in sister oil PSU Indian Oil Corporation (IOC).

“I was for picking up the entire 10 per cent which is now being shared equally by ONGC and Oil India Ltd (OIL). We should have picked up at least 7 per cent as I am very upbeat on IOC,” says Sarraf.

On the dispute with RIL.

On the ongoing issue with RIL about reservoir ‘connectivity’ of their adjacent blocks in the East Coast, ONGC’s director (exploration), NK Verma adds,“We have shared data, which is an international practice. It is apparent that a shift has happened, but it needs to be assessed.” ONGC wants a third-party expert to handle the assessment.

On the dispute with RIL.

On the ongoing issue with RIL about reservoir ‘connectivity’ of their adjacent blocks in the East Coast, ONGC’s director (exploration), NK Verma adds,“We have shared data, which is an international practice. It is apparent that a shift has happened, but it needs to be assessed.” ONGC wants a third-party expert to handle the assessment.

On subsidy sharing.

Sarraf says he is perhaps lucky that, as he joined as CMD, ONGC is in a slightly better position. The government has worked out a subsidy reduction plan for oil companies. With continuous increase in diesel prices, upstream companies such as ONGC need to pay less discounts to oil marketing companies like Indian Oil.

On OVL’s decision to buy Imperial Energy subsidiary in Russia.

Sarraf is hopeful of an improvement in OVL’s operations. The first could be a turnaround at OVL’s Imperial Energy subsidiary in Russia. Imperial Energy was performing poorly, as commercial production from its blocks in Tomsk region in Western Siberia fell to just 8,000 barrels. According to the results declared by OVL in 2012-13, total production from the blocks under Imperial Energy was 0.631 million tonnes of oil equivalent (oil and gas). Critics say OVL, which in 2009 bought Imperial at a valuation of $2.1 billion, made a big mistake. But Sarraf is optimistic. “On Monday (March 3), I got a text message from my colleagues working there (that) they have successfully completed fracking in two wells. The reservoir there is of tight oil, which has better tax breaks,” he says. Imperial is sitting on the Bazhenov shale formation, which experts believe could be the world’s single biggest shale oil reserve, he says. “I am convinced that this new development will lead to a turnaround,” he says. He adds that OVL is already taking help from US-based Liberty Resources, a leader in the hydro-fracturing technology, to exploit shale reservoirs.

On production in Sudan and Syria

Our production from South Sudan and Syria is down. The investments we made in the last two years might take some time to materialize.

On public listing of OVL

Sarraf, who as OVL chief was initially pushing for the unit’s initial public offering, now says he does not see it happening in his tenure as ONGC chief that runs through September 2017. “Today I don’t see it happening. Maybe in times to come things might change,” he says.