The oil subsidy regime which is taking a heavy toll on the finances of Oil and Natural Gas Corporation (ONGC) could hit the development of Mumbai High (Bombay High), which continues to be its most prolific producing asset although discovered half a century ago.
Company officials who have prepared the third-phase redevelopment plan for the field say that the net realisations on sale of crude oil from the phase will fall significantly short of the break-even price for crude oil.
The break-even price for the Rs 16,000-crore third phase is estimated at $66 per barrel for the Mumbai High North field and $77 per barrel for the Mumbai High South field. As against this, the current realisations after bearing the subsidy burden is just around $45-46 per barrel.
The break-even price includes operating costs, taxes, royalties and return on equity.
The company will soon approach the board with a proposal for the third redevelopment phase, which is expected to bring in an additional 20 million tonnes of oil starting two to three years from now. “We are worried that subsequent phases of redevelopment will become unviable as costs have gone up and subsidy burden remains high,” said a senior ONGC official.
ONGC subsidises PSU oil retailers to the extent of $63 per barrel for selling diesel and cooking fuel at discounted prices.
ONGC has made good accretion to reserves over the years (the reserve replacement ratio stood at a healthy 1.84 in FY13), but since most of the additions are of deep-water blocks, where it suffers technologically, the production has more or less stagnated. Mumbai High, although an offshore oilfield, is in shallow waters (about 75 m).
The Mumbai High fields, which have been producing for four decades now, require regular redevelopment programmes through improved oil recovery (IOR)/enhanced oil recovery (EOR) schemes to sustain production. According to senior ONGC officials, future redevelopment efforts could become unaffordable if the subsidy burden remains at current levels and the company could make losses on oil production.
Mumbai High is strategically important for the company as it accounts for about 50% of the company's production and the company has not made many oil discoveries in recent times.
ONGC undertook two other phases of redevelopment in 2000 and 2010 which resulted in an incremental production of 57 million tonnes (mt) and 36 mt of oil, respectively. In the two phases of redevelopment of Mumbai High, the company has already achieved around 47