Of strategic steps

Sourcing equity oil is one of the ONGCS strategic goals, says R.S. Sharma.-KAMAL NARANG

Interview with ONGC Chairman R.S. Sharma.

UNDER R.S. Sharmas stewardship the Oil and Natural Gas Corporation (ONGC) has made significant strides on several fronts besides consolidating its stature as an exploration and production (E&P) company. In the nine-month period ending December 2007, the company made 19 discoveries of hydrocarbon reserves.

Sharma took over as the regular Chairman and Managing Director (CMD) in July 2007. He was earlier Director (Finance) and was holding additional charge as CMD since May 2006. He has been on the Board of the corporation from March 2002 and has built up the companys fortunes since then. He streamlined the monetary support to ONGC Videsh Limited. He also turned round the financial state of another subsidiary, Mangalore Refinery and Petrochemicals Limited.

Excerpts from his emailed replies to a set of questions:

After more than a decade, the ONGC established last year more recoverable reserves than it has produced. The reserve to production ratio is greater than one. Congratulations to you on this. How do you plan to publicise this achievement and put into production these reserves?

Thank you for the compliments. The ONGC recorded in-place reserves accretion [in ONGC-operated areas] of 169.52 million tonnes of oil equivalent [MTOE], the highest in 11 years after 1995-96. It has also crossed the 150 MTOE mark for the ninth time in its 51 years of operation. We have continued to maintain the pace and consistency of the success in our exploration this fiscal. In the nine-month period ending December 2007, the ONGC made 19 discoveries [nine from new prospects and five from new pools]. Quantification of these discoveries will be declared after April.

For converting discoveries into producing assets, the ONGC has chalked out aggressive plans. We are optimistic about being able to reduce substantially the discovery-to-first-oil period. The ONGC has set a Capex [capital expenditure] outlay of $16 billion [Rs.75,984 crore] in the Eleventh Plan. It is envisaging production of over 140 million tonnes of crude oil during the Plan period [an increase of 10 mt over the Tenth Plan] and 112 billion cubic metres [BCM] of natural gas.

Coming to the publicity part, we are open and transparent in sharing our successes as well as our failures with the media.

India was promised a block in Sakhalin-III. Are we likely to get it?

OVL has been operating in Sakhalin-I since 2001. It has acquired a 20 per cent participating interest in the project for an investment of $1.7 billion the largest single across-the-border investment ever made by an Indian corporate at that time. We are now getting nearly 2.5 mt of crude every year from Sakhalin-I.

We have gained endemic knowledge about the business and the economic environment there that we hope to leverage to increase our operational footprint. We are optimistic that the diplomatic initiatives of the Indian government, the proactive support of the Ministry [Petroleum and Natural Gas] and the goodwill that the ONGC has earned as a reliable business associate will buttress our stake for the block.

What is the latest situation on the ONGCs performance in the deep-water blocks of the Krishna-Godavari basin? It was initially thought that the ONGC had established a reserve of 20 trillion cft of gas in the KG basin. Later, the corporation and the Directorate-General of Hydrocarbons (DGH) agreed that there was a reserve of only two trillion cft. How do you plan to prove the additional reserves?

We have submitted an appraisal plan for cluster development of our KG basin discoveries to the DGH. Their response is awaited.

Worldwide, there is talk of pooling the rigs for deep-water and ultra-deep water exploration. What are the steps being taken to ease the tough position on the availability of rigs for exploration?

With most of the E&P operators going aggressive on their projects, there has been a demand-supply mismatch in drilling rigs, especially in the deep-water arena, where the number of floaters is limited.

The ONGC is evaluating the emerging situation and is endeavouring to source rigs either through contract-hiring or through partnerships. We are also mulling over proposals on rig sharing with other companies for mutual economic benefit.

The Government of India is talking of a drilling holiday for deep-water exploration. So will the ONGC concentrate its exploration on land, thereby converting a challenge into an opportunity?

There is a global shortage of rigs capable of operating in deep and ultra deep waters. The operators had approached the Government of India for certain dispensation with regard to time versus minimum work programme fulfilments. The government is reportedly sympathetic to our request and such a move is welcome as it would offer some respite. Nevertheless, the ONGC will continue with its two-pronged programme of undertaking exploration surveys to gather more data for prospect generation and for securing rigs for exploratory drilling.

New Exploration Licensing Policy-VII (NELP-VII) is offering a number of deep-water blocks for exploration. Is it worthwhile to offer these blocks for exploration when there is a shortage of rigs for exploration in the existing deep-water blocks? In other words, is NELP-VII ill-timed, especially for deep-water exploration?

I would say that NELP-VII is well-timed because the crude prices are on an acclivity. This will encourage aggressive participation by global majors. In the road shows in London and Calgary, many oil majors such as BO, Shell and Exxonmobil evinced keen interest in participating in this round.

Lack of drilling rigs is a global constraint, and given the market dynamics, the drilling industry will eventually augment capacity. In the short term, there may be some challenges on the resource front, which the E&P operators have to manage through innovative solutions and outside-of-the-box thinking.

The ONGC is in partnership with Cairn Energy for the exploration of the Barmer field in Rajasthan. What are the ONGCs independent studies and contribution towards arriving at the maximum efficiency rate of annual production from the Barmer field and the transportation of this waxy crude? There are reports in favour and against the economics of establishing a refinery in Rajasthan. Even if the ONGC does not want to have its own refinery in Rajasthan, what are the problems in transporting this crude to the Panipat refinery? Or will a new refinery come up at Bhatinda?

In Barmer, the ONGC holds a 30 per cent stake in block RJ/ON/90/1. A case for any independent study simply does not arise because all decisions are taken jointly. We have sought a fiscal benefits package from the Government of Rajasthan to make the project viable. Meanwhile, the government has given us right-of-use [ROU] to lay a pipeline to the nearest coastline at Vadinar [in Gujarat].

The gas struck at Kuthalam near Thanjavur in Tamil Nadu has a significant amount of helium. The gas struck recently at Rajasthan also has helium content. What are the plans for extracting helium from these two areas?

The ONGC has recently commissioned a helium pilot extraction plant at Kuthalam in association with the Saha Institute of Nuclear Physics and the Variable Energy Cyclotron Centre [both located in Kolkata]. The technology has been demonstrated and it can be scaled up for commercial production.

There are reports that OVL is likely to get a block for exploration and development in the giant south Pars gas field in Iran. OVL may go with the Hindujas in this. What are your plans on this?

Sourcing equity oil has been one of the strategic goals of the ONGC. Acquiring oil and gas assets abroad requires well-established E&P expertise, diplomatic initiatives and an in-depth knowledge of the local business environment. We see mutual benefits in associating with business groups that have local presence in target countries. The Hindujas are one of such groups that we are partnering for our forays into the West Asian sector.