Half of ONGC projects face inordinate delays

Written by Siddhartha P Saikia | New Delhi | Updated: Jul 14 2014, 07:20am hrs
Almost half of ONGCs ongoing projects are facing huge delays, undermining the explorers ability to increase its oil and gas output, shows a review by the petroleum ministry.

The petroleum ministrys monitoring cell reviewed the performance of 41 ongoing projects of ONGC worth R78,265 crore. Nearly half the projects, amounting to R41,259 crore, are behind schedule, with delays in some cases being as large as 9-10 years, ministry officials privy to the review told FE.

Development of many of ONGCs small and cluster fields have been delayed. For instance, the company board on April 22, 2003, approved integrated development of the G-1 and GS-15 fields at a cost of R1,263 crore to be completed by April 2006. This project has now been delayed by 110 months (or 9.16 years) and is expected to be completed only by June 2015, resulting in the required expenditure increasing manifold. The revised project cost is estimated at R3,437 crore.

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The explorer is already burdened with the the governments policy of asking it to sell rpoducts at discounts to oil marketing companies, to reduce its own subsidy burden. This, company officials have said time and again, has adversely impacted its capital expenditure.

Other projects such as development of the B-193 cluster fields in western offshore, C-series fields, B-127 cluster, B-46 cluster in north-west of Mumbai High, have been delayed by two to five years.

These delays may hamper cumulative output of at least 20 million tonnes of crude oil and around 35 billion cubic metres (bcm) of natural gas over 15 years, the official added. At the same time, there has been at least 15-20% on average cost overrun for these projects.

ONGC is struggling to resist the falling output from aging fields and no incremental production is coming from new blocks bagged under the New Exploration Licensing Policy (NELP) auction. The biggest exploration company in India saw its stand-alone crude oil output falling from 24.67 million tonnes in FY10 to 22.25 million tonnes in FY14. Similarly, gas output has increased marginally from 23.11 billion cubic metres in FY10 to 23.28 billion cubic metres in FY14.

The review observed that there were several issues resulting in the delay of projects. There had been slow progress in the engineering and installation process, technological hiccups, claims and counter claims by contractors, delay in material supply and additional cost claims by contractors.

It has come to limelight that in many cases, ONGC had to terminate the contract after contractors failed to submit performance bank guarantees. Re-tendering takes time and delays completion of the projects.

In FY14, ONGC reported reserves of 2,004.15 million tonnes of oil equivalent (mtoe); which was 14% higher against 1,759 mtoe in FY13. However, the PSU firm is not able to monetise discoveries to boost its output.