Languishing leases: DGH asks ONGC to show work plans, may get tougher

By: | Published: September 3, 2018 2:46 AM

Concerned over the continuous fall in crude oil production by ONGC, the government has asked the state-run explorer for detailed, time-bound work plans regarding as many as 86 PML areas awarded to it, where production is yet to commence.

Languishing leases: DGH asks ONGC to show work plans, may get tougher

Concerned over the continuous fall in crude oil production by ONGC, the government has asked the state-run explorer for detailed, time-bound work plans regarding as many as 86 petroleum mining lease (PML) areas awarded to it, where production is yet to commence. While ONGC is learnt to have agreed to submit the work plans, sources said that the missive from the Directorate General of Hydrocarbons (DGH) indicates the government may have plans to ask the explorer to relinquish the PMLs if the regulator is not satisfied with the progress made by the company.

“Our view is that if no work is happening on PMLs, these should not be kept by ONGC. It has to either work on them or relinquish the areas,” said a source, requesting anonymity.

During the nomination era (pre-NELP), explorers were provided petroleum exploration licences for specified contract areas. Once a licence period expired, the firms would relinquish the area, except the discoveries made by it. After appraising the discoveries, PMLs were given for development of the area and production of oil and gas.

ONGC has 337 such PMLs, the largest in the industry, while Oil India, also a PSU, has 22 and 66 PMLs are with private players or their joint ventures with state-run explorers.

Though one PML would typically cover one development area only, more areas could be added later. Usually, the government monitors production at the asset level and does not get into micro surveillance such as the one DGH is now doing.

ONGC’s oil production over the years has been declining, though marginally (see table). However, its gas production has gone up. Another source said that while such micro-management of assets may complicate functioning of the company, it needs to be acknowledged that fields are aging. Both new discoveries and ramped up production from the existing fields are required. “ONGC needs to dig wells in a time-bound manner,” said this source.

Meanwhile, an ONGC executive told FE that the company is planning to increase its activities, particularly onshore, by at least 30% in the coming years to not only make up for the falling production from existing assets but also to increase overall production.

The DGH move comes at a time when Prime Minister Narendra Modi has called for a time-bound reduction in India’s onerous import dependence for oil and gas 10% by 2022 and 50% by 2030, with a commensurate increase in domestic production.

According to official data from the Petroleum Planning and Analysis Cell (PPAC), however, against domestic consumption, India’s oil imports were 78.3% in FY15 (the year the prime minister laid the roadmap for cutting import intensity) and the figure has since grown to 80.6% in FY16, 81.7% in FY17 and further to 82.8% in FY18.

Meanwhile, an ONGC executive told FE that the company plans to increase its activities, at least onshore, by at least 30% in the coming years to not only make up for the falling production from existing assets but also to increase overall production.

Both the public and private players in hydrocarbon production — the former’s relative share in crude production, according to PPAC, declined to 28.2% in FY18 from 29.2% in FY17 — are expected to increase their investments thanks to the new revenue-sharing (as against production-sharing) contracts offered under the discovered small-fields policy and the liberal open acreage licensing policy.

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