ONGC, India's most valuable and profit-making corporate today, is set to invest further in high-technology exploration and production - and beyond.
THE public sector Oil and Natural Gas Corporation (ONGC) is the corporate making the biggest profits in the country today: its net profit was Rs.6,197 crores for 2001-02. Its net worth is Rs.29,511 crores, which is the highest among all Indian corporates. It is the most valuable company in the country based on the market capitalisation of Rs.50,000 crores. The cash-rich company is a debt-free one.
Since its founding in 1956, ONGC has produced about 630 million tonnes of crude oil and supplied about 225 billion cubic metres of gas, thereby propelling the country's economy. It is one of the world's largest oil exploration and production (E&P) companies. It invests $2 billion in these activities every year. Between 2002 and 2009, it will be pumping $14 billion into E&P activities.
According to Subir Raha, Chairman and Managing Director of ONGC, the company is now "engaged in a major campaign for high-technology, high-cost, high-risk exploration in deep waters and frontier basins''. A strategic goal that the company is pursuing is to step up the recovery factor from the producing fields from the present average of 28 per cent to 40 per cent in a 20-year period. Enhanced oil recovery (EOR) and improved oil recovery (IOR) techniques will be used aggressively to achieve this.
The search for oil in India began when Goodenough of Mckillop Steward Co. drilled a well near Jaypore in Upper Assam in 1866 and the well "blew in". By 1882, the Assam Railway and Trading Company acquired rights for the exploration of hydrocarbons. When the company discovered oil at Digboi, Assam, in the late 19th century, it signalled the start of oil production in the country.
ONGC has its origins in the Oil and Gas Directorate of the Union government. In the early 1950s, the international oil lobby sought to prove that India had no producible reserves of oil or gas. But Prime Minister Jawaharlal Nehru and Union Minister for Natural Resources Keshav Dev Malaviya knew better. Nehru said: "A country that does not produce its own oil is in a weak position. From the point of view of defence, the absence of oil is a fatal weakness."
In August 1956, the Oil and Natural Gas Commission was set up, with Malaviya as its chairman. Its charter was to explore, drill and produce petroleum resources throughout the country.
In 1993, with the aim of diluting government equity in ONGC, the Commission was restructured as a public limited company and renamed the Oil and Natural Gas Corporation.
ONGC is active in 16 of the 26 sedimentary basins in the country. It is now producing oil and gas from six sedimentary basins. It has established 278 hydrocarbon finds with ultimate reserves of about 1,900 million tonnes of oil and oil equivalent gas (OEG). Its operations are spread from the Himalayan foothills to the Ramanathapuram coast in southern Tamil Nadu, from Mumbai High in the west to Assam and Tripura in the northeastern region, besides the Andaman and Nicobar Islands. The discoveries include those in the offshore fields of Mumbai High, Neelam, Bassein, Heera, Tapti, Muka, Panna, Ravva and the Cauvery basin. Onland, it has struck oil and gas in the Krishna-Godavari basin, the Cauvery basin, Cambay, Gandhar, Assam and Tripura.
ONGC contributes up to 80 per cent of the indigenous oil and gas production, the rest coming from Oil India Limited (OIL), another national oil company. ONGC is the largest producer of liquefied petroleum gas (LPG) in India, accounting for one-third of its production. It has the largest pipeline network in the country: 3,300 km sub-sea for oil and gas, besides 7,900 km onland.
Its crude oil production has, however, hit a plateau, no big discoveries having been made in the recent past. Crude oil production in 2001-02 stood at 26.30 million tonnes, marginally lower than the previous year's 26.61 million tonnes. Natural gas production for 2001-02 stood at 25.42 billion cubic metres, up from 25.36 billion cu m in 2000-01.
Under Raha, who has ambitious plans for ONGC, the company is becoming a vertically integrated one. Instead of confining itself to exploration for and production of crude oil and gas, it will have its own refineries to process crude into petrol, kerosene, high-speed diesel, naphtha, and so on. It also plans to set up about 600 retail outlets to market petrol, diesel, and other products. Towards this end, it has bought the 37 per cent stake of the A.V. Birla group in the Mangalore Refinery and Petrochemicals Limited (MRPL), which has a capacity of nine million tonnes. ONGC plans to pump in Rs.600 crores into MRPL to make it healthy. Its stake will rise to 51 per cent.
ONGC is also into the extraction of coal-bed methane (CBM), having pioneered the technology in the country. Methane extracted from coal beds is supplied through pipelines to be used as fuel in industries and to generate electricity. But its extraction involves a tough, technology-intensive process. India is estimated to have the potential to produce around 1.5 trillion cubic metres of CBM.
Raha said: "We began work on CBM five years ago. We are doing production testing in some of the coal beds we have developed." ONGC has concluded that the coalfields at Jharia and Jharkhand produce the best-quality CBM. It has spent Rs.35 crores on its CBM projects. ONGC has drilled about a dozen R&D (research and development) wells in Jharia. Today, production-testing is under way in the Jharia fields, where about 25,000 cubic metres of gas a day is being flared.
The Union government announced its CBM policy in 2001. ONGC bagged the Raniganj and Jharia blocks along with Coal India Limited and the Bokaro and North Karanpura fields along with IOC to extract CBM.
As part of an ambitious project to tap the seemingly endless energy resources found on the ocean floor, ONGC is also doing a pilot programme for the extraction of gas hydrates, a mixture of methane and water. India and Russia will together develop the technology for deep-sea mining of gas hydrates.
In its efforts to find oil and gas, a number of private industries assist ONGC. Elcome Surveys, a leading Indian survey company, has done challenging offshore surveys for ONGC along the Indian coast. The company provides ONGC a range of shallow water surveying, and also periodic surveying services. .
Another Indian company, Stewarts and Lloyds of India Limited, a subsidiary of Tata Steel, undertook the installation and commissioning of onshore gas terminal facilities for ONGC's offshore project at Rajahmundry. The plant was commissioned in July 2001. Stewarts and Lloyds had earlier completed a project at Uran, Maharastra for ONGC.
Dresser-Rand India manufactures natural gas compressors for ONGC. The manufacture of gas compressors began in India in the early 1970s at a plant in Ahmedabad owned, by Ingersoll-Rand. Dresser-Rand later acquired this facility.
ONGC has nine R&D institutes that are being independently managed. The Keshav Dev Malaviya Institute of Petroleum Exploration in Dehra Dun, which was established in 1962, is the premier centre for basic and applied research in petroleum exploration. KDMIPE deals with the research needs of the various ONGC regions in the areas of basin analysis, petroleum economics, geosciences and developing alternative sources of energy.
Another institute at Dehra Dun is the Geodata Processing and Interpretation Centre (GEOPIC). Apart from the processing and interpretation of geoscientific data in areas that range from seismic to petrophysical, geological and reservoir engineering, it analyses the 3-D seismic data gathered by ONGC to unravel sub-surface complexities in the search for oil and gas.
The Institute of Reservoir Studies (IRS), set up in 1978 in Ahmedabad, is ONGC's nodal agency for formulating oil and gas production schemes. ONGC's decisions on hydrocarbon exploitation are based on IRS' recommendations. The major projects it has completed include development plans for OIL's Kharsang oilfield; OVL's Tuba field in Iraq; the Ain-Zalah oilfield for the Iraq National Oil Company; and techno-economic studies of potential fields in Vietnam, Indonesia, Russia, China, and so on. The Institute of Drilling Technology (IDT), situated in the Doon valley, provides advanced technological knowledge to meet challenges in the field of drilling.
The other centres include the Institute of Oil and Gas Production Technology, the Institute of Engineering and Ocean Technology, both in Mumbai; the Institute of Petroleum Safety and Environment Management in Goa, the Institute of Management Development at Dehra Dun, and the Institute of Biotechnology and Geotectonics Studies at Jorhat, Assam.
What will gladden opponents of privatisation is the fact that ONGC will not come up for disinvestment. The Union Cabinet decided more than a year ago that the three flagship pubic sector undertakings (PSUs) in the strategic petroleum sector - ONGC, Indian Oil Corporation (IOC) and Gas Authority of India Limited (GAIL) - are not up for disinvestment. The value of its underground oil reserves amounting to about one billion barrels, calculated at the rate of $5 a barrel, alone adds up to $50 billion plus. When it became known that ONGC was not up for sale, certain interests sought to argue that ONGC was not managing its reserves well. But as a top official of the corporation put it, ONGC was not interested in quick cash flows. The official said: "If we want, we can produce fast but the reserves will deplete much faster... So, as an oil company, I would like it to keep increasing its reserves."
However, the business of oil and gas is a high-risk one. There are two kinds of investments: risk and development investments. The risk investment has to come from the company itself, on its own strength. Since ONGC is a zero-debt company, it is able to make even risky investments and is strong enough to absorb investments on wells that turn out to be dry ones. ONGC is indeed financially strong. While it has a paid-up capital of Rs.1,426 crores, the dividends it has paid to the Union government until now would add up to an amount 30 times that amount. In 2001-02, it paid the government the highest dividend amount ever by any company - about Rs.1,996 crores (140 per cent). In the previous financial year, the amount was Rs.1,568 crores (110 per cent).
