ONGC awards offshore tenders at 22% lower cost on falling crude

With a continuous fall in global crude oil prices, ONGC is reaping the benefits by awarding five offshore contracts at least 22% cheaper than the tender cost in 2015. The world’s biggest integrated energy companies, such Royal Dutch Shell, BP and Exxon Mobil, among others, are deferring and renegotiating drilling commitments, which is leading to the idling of rigs and services. This scenario offers an opportunity to ONGC to award development projects at discounted rates to boost output.

“Costs have come down. For example, the charges for hiring deepwater rigs have fallen to $250,000 a day from $450,000 per day. Similarly, charges for hiring shallow-water rigs have also reduced by about 40%. It is a global phenomenon and steel prices are also low. In the past six-eight months, we have awarded projects at ‘advantageous’ cost,” Dinesh K Sarraf, chairman and managing director of ONGC, said in an interview to FE.

Brent crude futures dropped over 3% to a low of $30.43 per barrel on Tuesday, a level last seen in April 2004. The commodity started a sharp decline in prices since June 2014.

During 2015, the government-owned explorer awarded five offshore projects (facility part) at R9,400 crore against put to tender cost of R12,000 crore. These include: Mumbai High South redevelopment project, Phase-3; Daman field development; C-26 cluster pipeline; replacement of pipelines; and Bassein development project.

These five projects are going to provide an estimated cumulative production of 58 million tonne of oil equivalent (mtoe) over the life cycle of the project.

In FY15, the board of ONGC approved seven major projects — four field development and redevelopment projects and three infrastructure projects — with an investment of around Rs 15,000 crore. In addition, during the current financial year 2015-16, seven major projects, including one infrastructure project, were approved with an estimated investment of Rs 12,000 crore.

Currently, the major field development and redevelopment projects taken up by ONGC include redevelopment of Mumbai High North and South, Daman in western offshore, while development of Gamij (Ahmedabad), South Banaskandi (Cachar), Nagayalanka (KG Basin) and Madanam field (Cauvery basin) are onland projects. Moreover, the development of the Bokaro field for exploitation of CBM with an investment of R650 crore has been taken up by the firm.

After facing a drop in crude oil production for the past seven years, ONGC has surpassed last year’s output of 22.247 million tonne (MT) to produce 22.262 MT of oil in FY15. Even though the increase is marginal, it indicates ONGC’s efforts to turnaround its production profile despite constraints of ageing fields and depleting resources from them.