ONGCs output stagnates even as reserves rise

Written by Pranav Nambiar | New Delhi | Updated: Oct 28 2013, 08:16am hrs
Despite good accretion to reserves year after year, public-sector ONGC is finding itself in the quagmire of stagnant production, primarily because major discoveries are held up in deep-water blocks.

Since new discoveries have come on stream slower than it wanted, producing fields are being tapped with aggression, forcing their quick march to exhaustion.

The reserve-replacement ratio has been greater than 1 since 2005-06, indicating that the discovered resources more than replaces production in any particular year; it went as high as 1.84 in 2012-13. Yet, the production numbers have hovered around the 51-53 tonnes of oil equivalent (mtoe) band.

ONGC officials say that major discoveries are held up in deep-water blocks where the company holds limited production expertise. Weak product management practices have also contributed to stagnation in production. Around 75% of ONGCs production now comes from just 15 fields.

Of course, it is aware of the need to augment output. It pins a lot of hope on rich gas fields particularly in the Krishna-Godavari Basin (KG-DWN-98/2), Daman and Mahanadi and the oil reserves in the D1 block in the Mumbai offshore field. ONGC recently appointed BCG to enhance its project management practices.

ONGC has more than 50 % of the total NELP exploration acreage allotted, of which, around 66% acreage is in high-potential-deep water fields. Since 2004, ONGC has drilled over 100 deep-water wells and discovered hydrocarbons in water depths of 3,000 feet feet in environmentally and logistically difficult areas off the east and west coasts. This ranges ranging from Gujarat offshore to Mahanadi and the KG Basin offshore and Andaman offshore. Out of these, around 25 wells have been drilled in water depths of 5,000-7,500 feet and 16 wells in water depths of 7,500-10,000 feet.

The company's most prospective block is KG DWN 98/2 with around 4.85 trillion cubic feet in-place gas reserves and 100 million tonnes of in-place oil reserves. The water depth ranges from 594 metres to 2,841 metres in the block. The block has been marred by delays and attempts at inviting foreign partners have not materialised. Other prospective blocks like MDW-13 (gas) in the deep-water Mahanadi offshore and ANDW-1 (gas) in deep-water Andaman offshore fields are challenging to produce from, say ONGC officials.

Around 200-300 million mtoe of in-place reserves are trapped in high-pressures (HP) or high-temperature zones or tight reservoirs. ONGC has created a Centre of Delivery for HP/HT zones in Chennai, because the major fields are identified in the KG Basin and three in the Cauvery basin.

A June 2013 report by Barclays Equity Research notes that ONGC has missed production targets for the last five years due to endemic project delays with its 40 large projects costing $14 billion running 22 months late on average. The report adds: We expect further delays; for example, the 13 projects that ONGC expects to come on stream by end FY14 were only 55-96% complete on March 2013.

Some of the new projects that faced delays includes the B-193 cluster, cluster-7, C-series, G-1, GS-15, etc. Improvised oil recovery/enhanced oil recovery programmes like those at Geleki in Assam and Rudrasagar in Tripura have also been impacted by project delays. Redevelopments like Mehsana and Ankleshwar have also been hit be delays.

ONGC chairman Sudhir Vasudeva told FE in a recent interview that current production includes fields which ONGC started off with including Ankleshwar and Rudrasagar (where production started way back in 1961. Mumbai High which was discovered in 1974 and started production from 1976, is still producing, he added.

These war horses are also depleting with every subsequent dose of investment IOR/EOR schemes. For instance, "In the first phase of Mumbai redevelopment we invested about Rs 8,000 crore and we got 57 million tonnes (mt) of oil and 16 billion cubic metres (bcm) of gas. In the second phase we have invested about Rs 16,000 crore getting 36 mt of oil and 6 bcm of gas and in the third phase, which is on the drawing board, we may again end up spending about Rs 16,000 crore but the incremental production will be about 18-20 mt," Vasudeva said.

However, Vasudeva noted that in the next few years ONGC's prospects look more promising as gas fields particularly in the KG Basin, Daman and Mahanadi will come on stream. These blocks will take gas production from 65 million metric standard cubic metres per day (mmscmd) today to 100 mmscmd in 2017-18. In addition, Vasistha and S-1 will be developed in an integrated manner and come on stream by 2015. While fields like the B-22 cluster, B-46 cluster, C-series, etc, have already come on stream, albeit a little delayed.

However, apart from the few large prospects like the KG Basin and Daman fields, ONGC will continue to rely on producing from the ageing fields as well as small and marginal fields that will taper off in a few years.

In deep waters

* Major finds held up in deep-water blocks where it has limited expertise

* Producing fields tapped with aggression, forcing quick march to exhaustion

* Around 75% of ONGCs production now comes from just 15 fields