State-run explorer ONGC is targeting an incremental growth of around 3% in crude oil production between FY16 and FY19 from the western offshore basin spanning from Saurashtra in Gujarat to the Kerala-Konkan coast. The planned acceleration in production entails investments of Rs 25,000 crore.
“We have a three-phase strategy. First is to achieve field growth, a low-hanging fruit. About 16,000 sq km in the Mumbai offshore basin is currently under a seven-year petroleum mining lease (PML), starting 2012. Secondly, there will be a focus on making new discoveries in the current areas till 2019. And thirdly, less explored areas will be given more attention,” one of the directors on ONGC board told FE, requesting anonymity.
The official said ONGC has deployed most advanced ‘broadband technology’ to survey for hydrocarbon and 3,980 sq km in the area is already been covered by it.
ONGC reckons that there are prognostic reserves of 10 billion tonnes of oil equivalent in the Western offshore.
Of this, around 60% has been converted into initial-in-place reserves and here, the production is under way. Another 500 million tonnes of oil equivalent (mtoe) is yet to be taken out from this discovered area.
“Our target is to convert another 1.5 btoe reserves into reserve-in-pace by 2019. The government has set a compound annual growth rate (CAGR) of 7% for ONGC’s production. To achieve this, close to 3% incremental growth from western offshore basin is a must,” the official added.
The increase in output is expected from currently producing assets such as Mumbai High North (MHN), Neelam & Heera, Panna-Mukta (joint venture asset), Bassein, Vasai East and newer area of Cluster 7 that includes B-192 and WO-24.
However, ONGC may have to borrow funds to meet its expenditure programme, say analysts. Higher subsidy outgo and lower crude price in FY15 has eroded its cash balance to just Rs 875 crore as on March 31, 2015 against Rs 10,600 crore a year ago. The only relief is that government has decided to foot the entire LPG subsidy bill in FY16, which would give room for ONGC to save funds for exploration activities.
The PSU firm feels that there ise no scarcity of funds, when it comes to meeting the planned capital expenditure. “Our cash reserve has been replenished to the tune of Rs 4,000 crore as of April 30. The crude price have already touched $66/barrel and without subsidy outgo, there would be good cash flow,” said another ONGC official.
“ONGC is now, in our view, closer to augmenting its production and should now be able to increase both its oil and gas production after years of stagnation, albeit gradually and in small quantities. We believe the steep fall in oil prices coupled with ongoing fuel subsidy reforms should lead to an increase in sale price realisation for ONGC’s oil,” said Kumar Manish and Alok Deshpande, analysts at HSBC Securities and Capital Markets.
Exploration in the Mumbai Offshore basin started in the early sixties when regional geophysical surveys were conducted by the Russian seismic ship. The first oil discovery in this basin was made in the Miocene limestone reservoir of Mumbai High field in February 1974. Nearly 50% of ONGC’s total acreage of 70,000 square kilometres fall in the Western offshore zone.
In FY15, the ONGC witnessed the highest production from fields in western offshore since 2008 that made the PSU firm breaking 7-year jinx and report a higher crude output. ONGC surpassed FY14 output of 22.247 million tonne to produce 22.262 million tonne of oil in FY15.
ONGC offshore assets are seeing better performance. In contrast with the average production of 2,85,330 bopd from offshore fields in FY14, the daily production has moved up to 3,07,265 bopd in FY15, registering over 7.7% year-on-year growth.