As crude slips, ONGC sees 30% drop in exploration costs

Lower demand for oil has also brought down costs of rigs and the cost of ONGC's subsidy share

State-run Oil and Natural Gas Corporation (ONGC), the country's largest exploration and oil producing company, is making the most of the drop in crude oil prices by negotiating service contracts from drilling companies and service providers. 

The drop in crude oil prices has helped ONGC lower its operating expenditure for exploration in shallow waters by 30%, a company official claimed. 

“In areas like shallow water exploration, service costs have come down bringing us huge benefit. Charges including hiring charges in case of vessels, rigs and barges have come down providing us a cushion of nearly 30 per cent in cost reduction,” said a senior official from ONGC.

This drop, he added, will help the company somewhat offset the drop in crude oil realisation. Since August 2014, crude oil prices have fallen more than 50%. As a result, ONGC’s gross realisation has dropped 41% to $63.8 per barrel in the June quarter. However, the silver lining has been the 91% fall in subsidy sharing to Rs 1,100 crore, which resulted in net realisation to $58.9 per barrel compared with $47.2 per barrel in the same quarter last year.

"If there is a drop of 30 per cent, it is a big amount for that particular vertical. Suppose we need 50 vessels to operate in the Western Offshore field. If we have hired 25 vessels for next five years at a lesser cost, it can bring down the total cost," the official added. 

The dip in crude prices has also pushed down rig prices by 30%. “Lower rig prices is the situation across globe not just India market. In fact in some other markets, rig prices have fallen by 50 per cent due to lower crude oil prices. (The) Situation is grim in the industry," said a senior official with Jindal Drilling on the condition of anonymity. 

ONGC mainly uses conventional and premium rigs. While the cost of conventional Jack-up rigs was $80,000 per day till last September, it has come down to less than $60,000 per day now.

The cost of premium jack-up rigs has come down to $85,000-90,000 per day from cost $110,000 per day. 

“Due to the slowdown in the construction market, at least South East Asia and other parts of the world, oil services companies are offering services at a much cheaper rate. We are also firming up our long term service contracts for three-five years,” added the ONGC official.