ONGC and Rosneft remain steady despite unstable energy market

Despite investors pulling back investment due to the drop of oil price, two companies have remained steady: India’s ONGC and Rosneft of Russia. They are among the few companies who continue to invest heavily in new discoveries and rejuvenate ageing gas fields.

Those investments are about to pay off for both companies as new projects come into production in the next few years, well in time to tap higher oil and gas prices. Oil prices are already showing signs of hardening oil prices in the international market.

For ONGC, the new projects will revive the company’s fortunes by doubling gas production and pushing up oil output by 22-23%. More than getting higher returns, the increased output will signal a reversal of the declining trend in the last several years as a growing number of ageing fields dominated the company’s portfolio.

“We have almost 70% of oil production coming from mature fields. My primary challenge is to step up production… The challenges facing ONGC, as I see, include finding out ways to increase domestic production, delivering projects under implementation on time and attrition,” company chairman Shashi Shanker, who took over the reins last month, said.

The International Energy Agency in September 2016 had said investment in the world’s oil and gas fields tumbled in 2015 and 2016, marking the longest period of retrenchment in energy spending in almost half a century. Spendings fell by a quarter in 2015 to US$583 billion and declined further in 2016 to about US$450 billion.

As oilfield services companies also dropped their rates, ONGC furiously went to work to take advantage of the cheaper services. It drew up 35 plans to develop deepwater gas discoveries in the east coast, new clusters in the west coast and rejuvenate ageing fields. All these projects envisage an investment of Rs 92,000 crore. Fourteen of these projects are for bringing new finds into production and six to improve recovery from ageing fields.

Shanker said these plans will raise crude oil production from 22.25 MT (million tonnes) in 2016-17 to 27 MT, about a quarter of India’s current oil consumption, and push up gas output from 22 billion cubic meters (60 million cubic meters per day) to 42 bcm (115 mscmd) by 2022.

But there are yet other challenges. For example, the government’s gas price. The current rate of US$2.89 per unit is way below US$4.5 needed to cover costs and get a reasonable return. “We have made representations to the government (on the issue). We are optimistic something will happen on this front,” Shanker said.

ONGC’s oil production will rise to 23 MT in the current fiscal and to 23.6 MT in 2018-19, 24.3 MT in 2019-20, 26.4 MT in 2020-21 and 27 MT in 2021-22. The output from the currently producing fields is projected to fall from 18.5 MT in the current fiscal to 12.66 MT in 2021-22. Gas output is projected to drop from 19.73 billion cubic meters from current fields to 11.9 bcm in 2021-22. The situation will be reversed with new fields that will contribute 29.65 bcm in 2021-22. Oil production is to be supplemented by about 5.3 MT production from fields where investment approval has already been given and another 8.45 MT from the fields that are under conceptualisation stage or investment approval is under process.

Production from the east coast discovery is expected to start in 2020 with peak oil output seen at 78,069 barrels per day and 16.6 mcmd of gas. As on October 1, 2016, ONGC had 577 hydrocarbon discoveries. Most of them were either in production or action had been initiated to monetise them.

ONGC’s roadmap to raise output comes two years after Prime Minister Narendra Modi set the target for reducing oil import dependence by 10%, from 77% in 2013-14. Today, India imports nearly 82% of its oil needs.