ONGC lost Rs 8,500 cr over rig management: CAG

By: | Published: December 10, 2015 12:27 AM

India’s flagship explorer ONGC has made losses to the tune of Rs 8,512 crore between FY11 and FY14 due to poor rig management programmes and idling...

India’s flagship explorer ONGC has made losses to the tune of Rs 8,512 crore between FY11 and FY14 due to poor rig management programmes and idling, delay in tendering and higher degree of inefficiency, said the Comptroller and Auditor General of India (CAG). In addition, the national auditor, in its report titled ‘Utilisation of rigs in ONGC’, said that due to idling of rigs, the government-run explorer suffered production deferment of at least Rs 5,117 crore of oil and gas.

The fall in crude oil prices (Brent crude hit a seven-year low of below $40/barrel on Tuesday), which has adversely impacted ONGC’s profitability, lent more urgency to the need to improve drilling practices and cut costs.

These findings raise serious concerns about the operations of ONGC, which is slow in ramping up output and now faces lower crude oil and gas prices to implement its capex programmes.

CAG, which audited ONGC rigs between FY11 and FY14, found that the company failed to make proper estimates of the requirement of rigs and their timings. This had led to rigs remaining idle and out of cycle for prolonged periods, and increase in drilling costs.

“Delay in the hiring process led to the loss of 391 rig months during 2010-14, which rendered the compant unable to drill planned locations… Rs 517 crore was charged off on account of rigs out of cycle during 2010-14. While a fraction of non productive time (NPT) was on account of non-controllable factors like weather, the bulk of idling time valuing Rs 6,418 crore was well within the control of the company and could have been addressed through better planning and coordination,” CAG said in its report submitted in Parliament on Wednesday.

Drilling activities are key to hydrocarbon production and reserve accretion and constitute the single most significant operation of an upstream oil exploration company. ONGC’s non-productive time or idling time of rigs ranged between 19% and 23% over 2010-14. Moreover, four out of six owned offshore rigs outlived their economic usable life of thirty years.

CAG also brings to the limelight the safety lapses in drilling and testing operations. ONGC used the rig Sagar Vijay even after one of its anchors had snapped. As a result, another anchor of the rig snapped, which caused drifting of the rig from its location. Consequently, the well had to be closed and abandoned. As a result, expenditure of Rs 1,577.27 crore incurred by ONGC on drilling of the original location, and drilling of a relief well by using another rig, proved avoidable.

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