his leadership, the Oil and Natural Gas Corporation (ONGC) has grown in
leaps and bounds. It is today the only Indian energy major to feature in
Fortune’s Most Admired List 2012. The company’s growth path seems to be
uncluttered. For the first time, ONGC has come out with a Perspective
Plan-2030 which outlines the production and financial targets to be
achieved, both in the short and the long term. The man in the hot seat,
Chairman Sudhir Vasudeva, speaks to Neeraj Dhankher on the
stiff challenges faced by the company and how he plans to overcome them.
How will the diesel price hike (by INR 5 per litre) affect your share of upstream contribution for under-recoveries in 2012-13? What burden-sharing formula do you propose?
subsidy burden which was projected by media and some analysts initially for
crore. At that rate, after the diesel price hike, the burden is expected to come
down by INR 20,000
crore. Now rupee has also appreciated against dollar which will have a bearing
on our contribution. Taking all this into account, our under-recovery burden
this fiscal is projected to be the same as last year, i.e. around
to 140,000 crore as per investors, in which case we may end up paying almost the
same amount which we paid last year.
One thing lacking currently in the system is that we come to know about the
contribution in under-recoveries only after the quarter is over. The government
had constituted the BK Chaturvedi Committee and Kirit Parekh Committee, which
had made very exhaustive recommendations on the same. However, because of other
compulsions, the government could not implement the recommendations made by
Why, according to you, is the participation of foreign companies in bidding rounds in the New Exploration and Licencing Policy (NELP) on the wane?
there are competing opportunities elsewhere. East Africa has opened up recently,
while there are opportunities galore in Brazil, Canada and Venezuela. So people
have to decide if they want to come to India or go to those places. Issues such
as size of reservoir, fiscal regime and the ease of doing business are some of
the considerations based on which investment decisions are taken. In India,
there are many issues, coupled with policy paralysis. Two years back India was
the place to be, but suddenly things are not that rosy. But being an optimist, I
feel things will change for the better. And if you look at the kind of actions
and decisions being taken in the last few weeks, there is every reason to be
ONGC’s plans to revamp aging fields seem to be not going as per plan. What the reason behind Assam Renewal Project getting delayed?
We are getting nearly 73 per cent of our entire production from our 15 fields
which are now between 37 to 51 years old. Mumbai High is 37 years old; while
Ankleshwar and Ahmedabad fields were put on production in 1960s. The Enhanced
Oil Recovery (EOR) and Improved Oil Recovery (IOR) schemes being implemented at
a cost of INR 330,00 crore have helped us in maintaining production levels from
such aging fields. More schemes are likely to follow soon.
The 22 IOR/EOR schemes will give 160 mmt of oil and oil equivalent, out of which
72 mmt has already been produced and another 90 mmt will be produced between now
and 2030. The future schemes will also help in arresting the decline or downfall
in production. We may not be able to show increase in production, but we will be
able to maintain production.
With regard to the Assam Renewal Project, initially there were some glitches,
but they have now been sorted out. In Assam, it is logistically difficult and
working environment is also not very conducive. There were also some contractual
issues which have now been taken care of. The project is on track and should be
completed around March 2014.
The government is known to be pushing for a takeover of ONGC’s Assam assets by Oil India Ltd (OIL). It is felt that OIL is better placed to handle assets in the North-East as it has a firm base in Upper Assam. Is this so?
R.S. Pandey was the petroleum secretary, a lot of comparison was done with
regard to working of OIL and ONGC. However, the ground realities are completely
different. Comparing ONGC and OIL is not an apple to apple comparison. OIL is
producing only 3.5 mmt, and 85 per cent of their production comes from new
fields, while in our case about 85per cent of production is from old fields. Our
fields are much deeper. Talks keep happening but there is no comparison between
the two companies, be it production, financial resources or manpower.
The audit watchdog, Comptroller and Auditor General (CAG) has slammed ONGC for shoddy exploration and targets, both for production as well as drilling. What are your comments?
I do not
want to engage in any debate with the issues regarding the observations of CAG.
What I want to submit is that out of 10.9 billion tonne of reserves accredited
so far in our country, 8.2 billion tonne have been accredited by ONGC. That
speaks volumes about our performance and commitment. Six out of the country’s
seven producing basins have been discovered by ONGC. We have a presence in all
corners of the country, and are today producing 70 per cent of country’s oil and
50per cent of gas. Before KG-D6 gas find, we were producing almost 84 per cent
of country’s oil and gas. We have our own credentials. This is just a perception
which depends on what kind of yardstick you have. Ground realities are quite
different. We are aware of what is not good in ONGC and we are constantly
working at improving it.
ONGC is reported to have surplus cash worth more than INR 18,000 crore. But a lot of this is reported to be lying waste in banks and has not been used wisely by ONGC. What are your comments?
crore of spare cash that we have, is not liquid. Out of this, around
crore is lying in site restoration fund which is meant for abandonment of
fields. We are supposed to keep this money in banks and every year we work out
what will be the cost of abandoning the fields. But this
crore is generating interest. So the corpus is increasing. Then, we also have
about INR 3,500
crore of unsecured liabilities which we are going to tie up with annuity. So
about INR 12,000
crore is lying like this and we are then left with only
crore. We have made a presentation to the finance minister where we have shown
that there will be a draw down from the surplus available with us in the five
year plan. So we will not generate more cash but will draw down from cash
Is borrowing an option, to fuel ONGC’s E&P operations in the future?
be looking at borrowings if there is a need. Today we are a debt free company.
Our net worth is
crore, while the entire ONGC group has a net worth of
crore. If we need to raise debt, we will be able to do so from the market.
How much of crude and gas production is expected from existing and new fields in the next few years?
production target for this year is 27.54 million metric tonne (mmt) of oil and
25.73 bcm of gas. It is about 1.6 per cent more than what we produced last year.
The discoveries which are going to be monetized this year are the marginal
fields. All these are at various stages of implementation. Some of these fields
have started contributing, like B-22, B-46 and B-193 fields. So by 2013-14, our
production will be around 3 to 3.5 MMT more than what it would be in 2012-13.
made another discovery this year in western offshore basin. While carrying out
drilling in D1 Field, we discovered a new pool of reserves. Earlier the D1 was
known to have IOIP (Initial Oil In-place) to the order of 600 million barrel
(82.20 mmt). After the discovery of the new pool, its total IOIP is expected to
be in excess of One Billon Barrel (140 mmt), thereby making it the third largest
field in Western Offshore after Mumbai high and Heera. By 2013-14, we will are
likely to increase production from this field to the level of 60,000 barrels a
What is the status of work on ONGC Petro-additions Ltd’s (OPaL) is mega petrochemical complex at Dahej in Gujarat?
There has been no cost overrun on the
project and the cost remains at INR 21,396
crore, which has been frozen and approved by the board. The project is nearly 60
per cent complete and should be completed by January 2014.
ONGC has made a foray into the LNG business. What kind of opportunities are you looking at?
See, more than deep pockets, we have a large heart. We plan to get into
everything concerning LNG, right from sourcing, transportation and setting up
re-gasification plant. It depends on the kind of opportunities. We are keenly
looking for opportunities in the entire value chain of LNG if it makes
ONGC has recently come out with its Perspective Plan-2030. What are the reasons for coming out with a new plan at this juncture and what will be your priorities?
perspective plan made before Perspective Plan-2030 was when Col. Wahi was the
Chairman. That time, ground realities were completely different. ONGC was not a
company but a Commission. There was no NELP, no competition and no subsidy
burden under APM mechanism. Even OVL had only one property at Vietnam. The
requirements were different so perspective plan was also different. The
Perspective Plan-2030 is based on the fundamental premise that if we have a
dominant Indian presence, to retain that we have to grow at a rate of 4 per
cent, so that we can increase our contribution in the country’s oil and gas
consumption from 20per cent to 30per cent by 2030. Oil and gas demand is
expected to grow at the rate of 3per cent, so we have to grow at 4per cent. In
our kitty today, 85per cent of production comes from domestic resources and
15per cent from our overseas E&P arm, OVL. This will have to change. We target
to produce 130 MMT by 2030, of which 70 MMT will come from domestic sources and
60 MMT from outside.
Today we are producing 52 mmt from ONGC and other joint ventures. The ratio of
domestic and overseas is expected to be 55:45. This is a compulsion we are faced
with. It is not that we are losing focus on E&P, but our growth vehicle has to
Do you feel shale gas can turn out to be a game changer in India as it did in the US?
the first to do pioneering work in shale gas in India. We hired Schlumberger and
its expert subsidiary TerraTek. We drilled four wells in Damodar valley which
confirmed the presence of shale gas. So we are up on a learning curve. Shale gas
requires two things -- horizontal well drilling and hydro fracturing. We
routinely do both. But that doesn’t make us complacent. We have tied up with
ConocoPhillips which is one of the US majors having lot of experience in shale
gas and deepwater blocks. Both of us are studying the potential of shale gas in
India. Besides India, wherever they have opportunities or operating fields of
shale gas, they will provide us an opportunity of joining them. By November 2012
we will have a fair idea on the areas on which we may cooperate in shale gas
Future of shale gas in India will
depend on how the shale gas policy pans out. But concerns are many. In shale
gas, the number of wells to be drilled is large as productivity of each well is
low. The large tract of land available in the US may not be available in any
other country. Similarly, hydro fracturing requires enormous quantity. Other
concerns like disposal of used water, affect of drilling on seismic activity and
pollution of water table have also been raised.
In countries like France, they have
stopped shale gas exploration altogether due to various concerns, while in the
US, efforts are being made to demonstrate that it is possible to take care of
all these problems. Further, when it comes to development of shale gas, there
are two issues- availability of infrastructure for evacuation of gas and
infrastructure for drilling.
Then there is the all important issue of pricing. In USA, the reason why people
are moving from shale gas to shale oil is that in Henry Hub the price is only
$2. So it is not becoming viable. Between now and 2020, USA will produce 5
million barrel of liquids more, from 7 to 12 million barrels. It is not only
likely to become self sufficient but a net exporter of hydrocarbons. USA today
has got 450 TCF of conventional gas and 875 TCF of shale gas. In case of India,
the first step is to assess the reserves correctly.
Given the decline in participation of foreign players in bidding rounds, do you feel India needs to replace NELP with the Open Acreage Licensing Policy (OLAP)?
OLAP is only possible if you have
accessibility to all the right data. For that, National Data Repository has to
be created. That is now being done. Once the data depository is in place, it
will lead to better participation of foreign players. Today, in India, there is
no choice while participating in the bidding round. The DGH decides which blocks
they want to offer. Many times the same blocks are recirculated. Unless there
is more knowledge on the block, or there is a change in fiscal regime which can
improve the block’s viability, who would want to bid? In case of OLAP, bidders
will have the freedom to bid for all 26 sedimentary basins based on data
Do you feel there is a need to change the PSC fiscal regime in India? You have already submitted your comments to the Rangarajan Committee on the same.
that we do not agree with the current profit sharing mechanism in the existing
PSC regime. But if it can be made better then why not? Idea is how to make
things better to draw more people. So the proposal submitted by us is a win-win
for both the government as well as the contractors. Of all the comments received
from different entities, the Rangarajan Committee in its wisdom will pick up
whatever is the best in all of that and come out with the best of the best.
(InfralineEnergy thanks Sudhir Vasudeva,
CMD, ONGC for sharing his valuable insights with our
readers. The column 'In-Conversation', is a platform to engage
experts from various sectors to share their views on the different
transformations happening in the Indian energy sector.)