What is more, a majority of ONGC's oil and gas fields are ageing with falling production. The company has implemented projects to slow the decline in production. Initially, investment in these projects paid back well. However, now the company has reached a point where it is faced with diminishing returns from such investments. That means a shrinking financial wiggle room for the company. The writing is on the wall: If ONGC is not freed from the subsidy sharing burden soon, its exploration efforts could flag.
Our reserve accretion has been fantastic. Last year we accreted 84.84 million tonnes ( mt) and this is the highest in the last 22 years. Our reserve accretion ratio was 1.84. We produced 46 mt and accreted 84 mt, said Sudhir Vasudeva, chairman and managing director of ONGC.
But in the same breath he also added: Our fields are ageing; 75% of our production is coming from just 15 fields, including the fields in Ankleshwar and Rudrasagar, which were discovered in 1961 and started production in the same year. They are still on production. Also Mumbai High, discovered in 1974 and started production from 1976, is still producing. This is the kind of vintage. So production is definitely falling.
The company has made considerable efforts in implementing Incremental Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes. It has spent nearly R33,000 crore; 16 schemes have been completed, and eight more schemes are running. These fields are producing in the range of 7-8 mt every year. Had ONGC not executed these schemes, its output would have been less. The only problem is that with every subsequent dose of investment coming in this IOR/EOR scheme, production is falling. It is a case of diminishing returns, Vasudeva said.
In the first phase of Mumbai redevelopment, the company invested about R8,000 crore and got 57 mt of oil and 16 billion cubic metre (bcm) of gas. In the second phase, it invested about R16,000 crore and got 36 mt of oil and 6 bcm of gas. In the third phase, which is on the drawing board, we may again end up spending about R16,000 crore, but the incremental production will be about 18-20 mt, Vasudeva said.
ONGC is also entering the shale gas segment, where it has played a pioneering role. The cabinet committee on economic affairs (CCEA) has recently approved the shale gas exploration policy. "We have plans of drilling at least a few wells this year and have plans ready for the KG, Cambay and Kaveri basins, Vasudeva said. These basins have recoverable reserves of 93 trillion cubic feet, by an estimate of the International Energy Agency.
However, Vasudeva warns that shale gas exploration will not be a panacea for Indias energy problems as land acquisition is going to be a very big issue, especially after the new land Act. He said shale gas production requires a large number of wells to be drilled because of low their productivity compared to conventional wells. Also drilling each well will be two-three times more expensive because we have to build horizontal wells of long length and do a multi-stage fracturing, he said. Some 2-3 million gallons of water need to be pumped per fracture, with an an average of 20-30 fractures for per well. So the cost of drilling wells will be high and arranging land, rigs, water, infrastructure to evacuate this gas will also be a challenge. US energy major ConocoPhilips is helping ONGC in its efforts to find shale gas.
ONGC is absent from the North America where shale gas has dramatically transformed the energy scenario. It is unable to make a headway in other countries. We are working in many countries where the US sanctions apply. One of them is Iran, and there are Sudan, Syria, Libya, etc. In Syria and Libya no production is happening. In Iran, ONGC has discovered the Farsad field with reserves of 12 tcf, but the project has not taken off because of sanctions. Diplomatic efforts are on to see as to how we can move
forward. But now with the discussions happening between Iran and the West, hopefully things should look better, Vasudeva said.
ONGC is an active player in the corporate social responsibility (CSR) space. With an annual CSR budget in the range of R500 crore, ONGC now wants to focus on projects with a high social impact potential.
On CSR we take a lot of pride. We are doing these things from a time when even the term was not coined. We used to call it socio-economic development and in all our work centres we used to do this. All asset and project managers had the powers of doing community work around their areas. During 2001-02, when Subir Raha was company chairman, we had allocated 0.75% of our profit for CSR. There was no guideline at the time. We did this on our own, Vasudeva told FE.
When the company bill was being made and the guidelines stated that 0.75%-2% of profit after tax (PAT) be contributed for CSR, we decided that 2% would go towards CSR. 2% for us is big. With a PAT of R20,000-25,000 crore our CSR budget is R400-500 crore.
We now plan to create a foundation for our CSR activities. It has already been approved by the board and the modalities are being worked out.