Field force at ONGC

Employees of Oil and Natural Gas Corporation (ONGC) have written to Prime Minister Narendra Modi expressing unhappiness with the Directorate General of Hydrocarbons identifying 15 fields, 11 belonging to their company and four to Oil India Ltd (OIL), in which private players would be invited for up to a 60 per cent stake in return for a revenue share. These employees are demanding flexibility for the company rather than “privatisation” of assets. Privatise the company itself, if need be, rather than killing it, they argue.

Yet, this is not the first time, oil fields are being privatised. Before the New Exploration and Licensing Policy was put in place in 1997 to attract private participation in exploration and production, some of the fields — like the Panna, Mukta and Tapti given to a consortium of Reliance Industries Ltd, British Gas and ONGC — were privatised. ONGC continued to hold a minority stake only as a government nominee.

In March this year, the government awarded 30 contracts for discovered small fields (DSF) that belonged to the two state-owned companies to various companies. These contract areas have in-place reserves of 24.8 million tonne of crude oil and 19.9 billion cubic metre of natural gas. 

According to petroleum minister Dharmendra Pradhan’s reply to a Parliament question, the DSF fields had a discovery vintage of more than five years. ONGC and OIL had not been able to develop these discoveries due to “isolated locations, small size of discoveries, fiscal regimes, etc”. By the minister’s own admission, the fiscal regime was one of the issues. 

Government officials prefer to call the proposal for the new contracts a “production enhancement” plan aimed at reducing India’s import dependence by 10 per cent by 2022, a target set by Prime Minister Modi. In effect, it will mean privatising fields that the companies acquired on a nomination basis prior to the opening up of the sector. These fields are not small ones like DSF and are already producing.

Apart from reducing import dependence, auctioning these fields  signals a desperation to attract investment in the sector that has not seen major players coming in, despite more attractive contract in the DSF round and an open acreage licensing policy (OPAL). These new policy regimes offer greater pricing freedom and better fiscal terms compared to NELP. 

What’s changed is that unlike the earlier phases of privatisation, both ONGC and OIL are now listed companies and a substantial portion of their revenues comes from these producing fields. “ONGC will be virtually dead if you are taking the cream away from it. The government deciding not to repose trust in ONGC is humiliating,” says R S Sharma, former, chairman and managing director, ONGC.  

A spokesman for ONGC declined to comment, and the director general, Directorate General Hydrocarbons, Atanu Chakraborty, was not available for a comment. Ministry officials, too, remained unavailable. ONGC officials are, however, furious. In a letter to Modi, SK Goel, president, Association of Scientific & Technical Officers of ONGC, said the fields are legacy assets of ONGC from which the company has been producing for the last 30 years. “Output  will naturally show a dip from the peak. Thus, they cannot be termed as under-performance,” says the letter.

Sharma  touches an emotional chord by adding,  “ONGC has built the domestic petroleum industry and has optimally managed fields. They are still producing. Private companies globally speed up production, [and] flog [them] without bothering about the health of reservoirs.” 

ONGC holds the largest exploration acreage in India as an operator. As on April 1, 2017, it has 335 petroleum mining leases (PML) with an area of 56,675 square km that have been given on nomination basis. Besides, it has nine nomination exploration licences with an area of 37,764 square km and has 32 active NELP blocks. Four NELP blocks in Gujarat have been converted, wholly or partly, into PML. The NELP operating acreage area for ONGC as an operator is 48,643 square km. In addition to these, ONGC as a consortium partner operates in six NELP blocks with an area of 24,799 square km.

The reason that ONGC is dependent on these old fields for its revenue is that newer discoveries are fewer and taking longer to be developed. During 2016-17, 203.24 million tonnes (mt) of oil and oil equivalent gas was added to its in-place hydrocarbons reserves in its operated fields in India. The total in-place reserves of the group stands at 9,655.36 mt against 9,444.74 mt a year earlier. The recoverable reserves were estimated at 3,132.35 mt last year against 3,075.51 in FY16. 

ONGC in its annual report says the exploratory risk in domestic basins stems “from diminishing acreage area at our disposal which hugely constrains our capacity to undertake aggressive exploratory campaigns in a difficult market. Our acreage position has come down from around 490,000 sq. km in 2012 to 150,000 sq. km in 2016…the limited size of available acreage had a negative impact on the end potential of our finds as a majority of the finds continue to be small in size which adversely affects any future plans for commercialisation”. Taking away of the fields will further reduce its acreage. 

Goel says if stagnant or flagging production is a criterion for identifying underperforming fields, then the same yardstick should be extended to all domestic fields. “The production today at RIL operated KG-D6 is under 10 per cent of its targeted production. For a field that is less than 10 years, into its lifecycle, this a staggering drop.” Another example, he says, is the Ratna-R series fields, which were awarded to a consortium of Essar Oil in 1996 when they were already producing. Since Essar Oil contract could never be finalised, the fields were returned to ONGC last year.

Since the concern about ONGC and OIL fields is the low recovery factor, Sharma stresses the need for technology support and hiring of domain experts. “To eliminate corruption, all nomination contracts could be approved by the board. A committee of officials or directors depending can give recommendations to the board,” he says.

For the government that is heading for elections in less than two years, privatising even in the name of higher production will be fraught with political risks, too. Though government officials prefer to be quiet on the issue, Sharma underscores the need for an official clarification so that the investor and employee confidence in government policy towards these companies is restored.

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