ONGC looking to aggressively expand acreage under exploration

With a steady rise in domestic fossil fuel consumption making the country’s target of cutting import dependence on oil more challenging, state-run Oil and Natural Gas Corp. (ONGC) has decided to aggressively expand its acreage under exploration and production from July once the government starts accepting bids for 26 unexplored sedimentary basins.

The country’s largest oil and gas producer intends to increase its exploration and production acreage at least by 30% over the next few years from 90,000 square kilometers at present, a senior official said, asking not to be named.

ONGC chairman and managing director D.K. Sarraf, when contacted, said that being a national oil company, ONGC has the task of leading the country’s quest for energy security and that the company would aggressively expand its portfolio of assets once the open acreage licensing policy (OALP), of letting explorers to bid for the area of their choice, comes into force from July.

Under this scheme, once an explorer expresses interest on the area of its choice, the government will seek counter-bids before awarding the area to the winner. This is a major departure from the earlier practice of the government carving out specific blocks and offering them to businesses, which restricts investors’ choice.

“We are very much cognizant of the potential of these basins. Being the national oil company with the task of ensuring energy security, if we do not take the lead in exploring these areas, who will,” Sarraf said without commenting on the target set for acquiring new areas for exploration.

ONGC at present has mining (production) licence on about 56,000 square kilometers and exploration licence on the remaining part of the total 90,000 square kilometers of acreage. The first person quoted above said that the key is to acquire resource-rich areas and not merely adding acreage.

The state-run explorer and producer is seeking to acquire more assets at a time when fuel consumption is rising steadily in the country on the back of 7.1% economic growth (in 2016-17) and a special drive to promote consumption of liquefied petroleum gas (LPG). After expanding by 12% in 2015-16, annual consumption of petroleum products rose by over 5% in 2016-17 to 194 million tonnes. Net oil imports, which jumped 17% in 2015-16, expanded by over 7% in 2016-17 to 184 million tonnes. Strong domestic consumption makes the planned reduction in import dependence by ten percentage points from 2015 levels to 67% by 2022, a goal set by Prime Minister Narendra Modi, more challenging for oil companies.

To aid the proposed reduction in import dependence, the government is adding bio fuels into the energy mix, besides taking energy efficiency measures.

The government in March last year liberalized the contractual and fiscal terms for offer of blocks under the new Hydrocarbon Exploration Licensing Policy. While the amount of investments that may come is also likely to be influenced by the outlook of companies on price movements of hydrocarbons, experts described the policy framework as welcoming.

“Replacing profit sharing with revenue sharing, granting pricing and marketing freedom for companies and allowing production of all forms of hydrocarbons under the same contract are steps in the right direction,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India LLP.

Sarraf explained that the company was putting in more efforts into exploration and in monetising discoveries. It expects a 10% increase in gas production in 2017-18, up from 23 billion cubic metres produced in 2016-17. For the current financial year, the company has set a capital expenditure target of Rs30,000 crores.

The company has also sought a special pricing mechanism for natural gas to be produced from several of its small gas fields, similar to the liberal pricing norms granted to winners of 67 small blocks auctioned in 2016. Sarraf said that the relief has been sought to make gas production from these fields financially viable and that it is being considered favourably. “For the ten percentage point reduction in import dependence, we need government support,” another official said on condition of anonymity.