ONGC: Ageing wells a concern

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SummarySubsidy burden increases amidst falling production

ONGC has added oil and gas reserves at a record pace in 2012-13, despite sharing the burden of oil sector subsidy, which left it with inadequate funds for investment in the exploration business. The recent rupee depreciation could, however, test the company's resilience. Crude oil in the international market has become more expensive for Indian oil refining and marketing companies, which could find it difficult to pass on the entire cost to retail consumers. That means a higher subsidy burden for ONGC.

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

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