ONGC to move on to next cluster in KG block

The company however, expects the Indian government to make natural gas prices attractive

State-run Oil and Natural Gas Corporation (ONGC) plans to go ahead with cluster-two development of its 98/2 block in the KG basin and begin production of gas and oil by 2019.

The company, however, has asked the Indian government to make natural gas prices attractive, said D K Sarraf, ONGC chairman and managing director, at an energy conference in Mumbai on Tuesday.

“We are going in for cluster-two development. The only challenge is pricing, which needs to be reasonable. I am very sure the government will help us boost the economics of the field by giving us a reasonable price,” said Sarraf.

A decision on cluster-one would be taken after looking at a report by US-based consultant DeGolyer and MacNaughton (D&M), appointed by Reliance Industries (RIL) and ONGC to assess if gas had flown from ONGC’s KG block to RIL’s adjoining block.

ONGC had in 2013 claimed that RIL had deliberately drilled wells close to the common boundary of its blocks and some gas pumped out was from its adjoining block. RIL has maintained it had followed the production sharing contract in letter and spirit and done no wrong, and had drilled all wells within its boundary.

Sarraf said ONGC will see a 20-30 per cent reduction in its capex plan for the next financial year. “This projected reduction in the capex for FY17 has nothing to do with a reduction in our work but with the projected decline in service charges, given the depressed price situations. So, we see 20-30 per cent decline in our capex next financial year. For the current year it will be the same as last, when we invested around Rs 30,000 crore.”

Sarraf said a decision on further course of action with regard to the gas migration issue would be taken after D&M submits its report. Earlier, government officials had said the stage for negotiations was long over and an agreement between the two sides was possible only if RIL had not drawn the gas.

ONGC said it had submitted a field development plan to the directorate general of hydrocarbons (DGH) but needed to fine-tune cost.

For cluster-two, peak production would be around 75,000 barrels a day of crude oil and 17 million cubic metres of gas per day.

The company would pump out gas first and then oil. “It may not be economically viable at current crude oil and gas prices. We would be requesting the government to look at a domestic gas price and based on the government’s decision, we would decide on the investment,” said Sarraf.

On the issue of scrapping the cess on crude oil, Minister for Oil and Natural Gas Dharmendra Pradhan said, “My ministry is of the opinion that it should be ad valorem and formula-based and we are in discussions with the finance ministry.”

Cess is a huge burden on companies such as ONGC, Oil India and Cairn India and in a low-price regime. But the finance ministry was not in favour of losing about Rs 16,000 crore a year, which accrues to it through the cess.

Exploration and production companies have been lobbying with the government to reduce cess that has been hurting their profitability, more so now with the crude oil price on a decline. Cess levied is Rs 4,500 a tonne.

The minister added that ONGC has revived talks with Iranian state company Pars Oil and Gas Co to return to the $10-billion gas project.

ONGC had discovered gas in the field in 2008, but had to quit the project in 2010 after the US pressurised countries to quit doing business with Iran owing to its nuclear programme.