ONGC for market pricing to outsource small fields

Siddhartha P Saikia Posted online: Monday, Jul 21, 2014 at 0000 hrs
New Delhi : If ONGC is to be able to step up output from its marginal fields, it has told the government it needs to be paid market prices for such oil. ONGC needs to outsource these fields to third party contractors, but is unable to get any response at the current subsidised price of $40.97 per barrel that it gets.

The fields have estimated recoverable reserves of 376 million tonnes of oil equivalent (mtoe).

Sources say ONGC is finding it difficult to put to production the pre-NELP marginal acreages because these are not ‘economically viable” given the smaller volumes. As a result, most fields are lying idle.

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“When we floated tenders to give out marginal fields as service contracts no players came forward because the net realisation of crude prices, after sharing the oil subsidy, is very low. So, we have asked government to keep the output from marginal fields out of the subsidy ambit,” an ONGC official said.

Increasing oil and gas output from these smaller fields has been the top priority of petroleum and natural gas minister Dharmendra Pradhan who has asked ONGC to come up with a detailed plan on how to develop them. Pradhan told FE that his ministry was working to boost domestic oil and gas output but was non-committal

on whether the ministry would agree to ONGC’s proposal for a market-driven price for the output from marginal fields.

The ONGC board, under previous chairman and managing director Sudhir Vasudeva, had decided to bid out 26 marginal fields comprising six in KG onshore, seven in western onshore and 13 fields in western offshore to private explorers as ‘service contracts’ under a fixed international pricing model.

However, fluctuations in net realisations because of higher subsidy burden ensured Ongc did not get any response.In such contracts, Ongc allows service providers to keep the upside after giving it a certain price per barrel.·

Last year, the total output from the 74 marginal fields, currently under production among the 165 allocated to ONGC before the new exploration and licensing policy (NELP) was put in place, stood at just 1.6 million tonnes of crude oil and 3.2 billion cubic metres (bcm)of gas. In other words, just 7.19% of ONGC’s standalone crude oil production and 13.74% of such gas output (additionally, the PSU has several joint ventures also) came from these marginal fields. This indicates the huge potential for augmenting production at viable output prices.

At present, ONGC bears close to 40% of the cost of oil subsidies --it paid a staggering Rs 2.72 lakh crore in subsidy over the 11 years to FY14 and Rs 56,384 crore in the last fiscal alone. This constrains the PSU in exploration ventures. The discounted (net) price at which it sold oil in last year was $40.97 a barrel, below the break-even rate of $44.

In FY14, the Maharatna firm sold every barrel of crude oil for $106.72. However, it has to bear a subsidy of $65.75/barrel to compensate state-owned oil marketing companies leading to a net realisation of just $40.97 a barrel. 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.