ONGC shortlists three oil service majors to lift output from two fields

By Promit Mukherjee

MUMBAI (Reuters) - The Oil and Natural Gas Corp (ONGC) is set to hire international oil service giants for the first time to boost output from domestic oil fields in response to a government push to increase local supplies and cut expensive imports.

ONGC, India's biggest explorer, has shortlisted U.S. oil service companies Halliburton, Schlumberger and GE subsidiary Baker Hughes to submit proposals on boosting production from two onshore fields, according to a document seen by Reuters.

The three companies have until May to submit their proposals for what ONGC is calling a "production enhancement contract" for an oilfield in Assam and another in Gujarat.

"The shortlist is ready. We will now share our data on the two fields with these companies," an ONGC executive said.

The executive - who did not wish to be named as ONGC has yet to make an official announcement - said the final contract is likely to be awarded by May.

Emails to Halliburton, Schlumberger and Baker Hughes requesting comment on their participation were unanswered outside of U.S. business hours.

SOARING DEMAND, STRUGGLING OUTPUT

The government last September proposed selling a 60 percent stake in ONGC's producing fields to foreign companies to ramp up domestic oil and gas output and meet Prime Minister Narendra Modi's target of cutting oil imports 10 percent by 2022.

India's oil production has stalled below 1 million barrels per day (bpd) in recent years, even as oil demand has surged. That has resulted in its crude oil imports soaring, making it the world's third-biggest importer, behind China and the United States. In January, India's imports hit a record of almost 5 million bpd.

ONGC, which the government hopes to eventually build into a global giant like Exxon Mobil or a state-owned oil major like PetroChina, has often been criticized by analysts and New Delhi for failing to increase its production.

ONGC's output - most of it from fields that have been operating for more than 30 years - is declining at the rate of 7 to 8 percent a year. A major part of the company's capital expenditure is spent in efforts to pump more oil and gas to set off the yearly decline.

For the fiscal year ended March 31, 2017, ONGC's standalone crude oil production stood at 20.855 million metric tonnes (417,000 bpd), a one percent fall from the previous year.

Once the final contractor is chosen in May, the winning service company will be responsible for maintaining production at current levels, and also for boosting output incrementally from the two mature fields, the ONGC executive said.

"We will reimburse the operational expenses incurred and share some pre-determined amount on each barrel of incremental crude that the contractor will produce," the executive said.

Halliburton, Schlumberger and Baker Hughes will get access to ONGC's data rooms pertaining to its Kalol field in Gujarat and the Geleki field in Assam before submitting a final bid, according to the bidding document.

ONGC might replicate the model for other fields if this pilot exercise is a success, the executive said.

ONGC explored a similar move in 2016 and had signed agreements with Halliburton and Schlumberger aimed at enhancing production, but the agreements were later cancelled, according to reports in local media.

(Reporting by Promit Mukherjee; Editing by Henning Gloystein and Tom Hogue)