ONGC to invest $4 billion in KG basin’s D5 block
On the heels of the Government announcing a slew of reforms in the oil and gas sector, state-run explorer Oil and Natural Gas Corporation (ONGC) on Saturday said that it will finalise “a multi-billion dollar investment plan” for the 98/2 fields of D5 Block in the KG Basin by the month-end or early April. The D5 Blocks will be the second largest oil and gas fields for both ONGC and in the country, with the largest being the Bombay High oil fields and the Bhasin gas fields.
“We will finalise a multi-billion dollar investment for our 98/2 fields in D5 Block in the KG Basin by the end of the month or early next month. I cannot divulge exact quantum of the investment, but I can assure you that it will be in multi-billion dollars,” ONGC Chairman and Managing Director S K Sarraf told reporters here.
This will be the largest investment in a single field by ONGC in its over six decades of existence, he said. When asked for an approximate investment amount, the chairman refused to quantify, saying, “We are yet to finalise the details. But it will be in multiple billions”.
Company sources, however, said that “going by the size of the fields and ultra-deep water drilling involved, it should be anywhere over $4 billion over the next three years when we will commission the project”. Sarraf said that on completion of the development by the end of 2019, the 98/2 fields in the D5 Block in the Krishna-Godavari (KG) Basin off Andhra coast, will be able to pump out 75,000 barrels a day of oil and 17 million standard cubic metres a day of gas.
“Over the next 15 years beginning 2020, we will see our output touching 23 million barrels of oil and 50.7 million cubic metres of gas from this field. We expect to achieve peak production levels by FY22,” he said. Sarraf described the new oil and gas policy announced on March 10 as “the best thing happened in many decades as that was a golden day for the oil industry”. The Cabinet approved a new pricing formula for gas discoveries made in difficult-to-access areas.
The formula will be based on a weighted one-year average of prices of fuel oil, naptha and imported coal. In a bid to attract investments in oil and gas sector, the government announced a new pricing formula for undeveloped gas discoveries in difficult areas that would result in 85 per cent jump in rates and help monetise Rs 1.80 trillion of inert finds. .
On the financing side of the massive investment into the D5 Blocks, ONGC Director (Finance) A K Srinivasan ruled out borrowing for this, saying that if the crude price remains at the current levels of $40 a barrel, these expenses spread over three years will be managed with internal accruals and drawing down from cash reserves which stood at Rs 14,500 crore now.
Asked whether he sees any addition to the reserves this year, he answered in the negative, saying he expects a decline of over Rs 3,000 crore due to the massive plunge in crude prices. He said that ONGC is a debt-free company on a standalone basis, while at the Group level it has debt of Rs 43,000 crore, most of which is on the book of its international arm ONGC Videsh Ltd (OVL), whose net debt is Rs 35,000 crore, most of which has been borrowed for the acquisitions in Mozambique.
On the decline in production, Sarraf said over the past 8-10 years, ONGC has been seeing a continuous drop in output of both gas and oil to the tune of 2 per cent a year. “But fortunately, we could stop the decline from last year and we expect to see production growth from FY17,” he said, adding oil production decline was more pronounced in 2014 and 2015. On the projects side, Sarraf said the company got approval for six projects in FY15 worth Rs 28,000 crore which could produce 78 million tonnes of oil and same amount of gas. The company completed 8 projects worth Rs 27,000 crore in the same fiscal.
In FY16, the company has started six new projects worth Rs 14,000 crore which can produce 23 mt oil and gas equivalent and completed 11 projects worth Rs 28,000 crore. “Before June, we hope to complete 5 more projects.”
On the capex for next fiscal year, he said the company will be investing around Rs 30,000 crore over and above the huge D5 investments planned. The PSU has been investing Rs 30,000 crore on an average for the past many years now. Sarraf was quick to add that though there was a decline in capex, the actual projects “we have been working on have in fact increase, thanks to the decline in input cost and also cost of services”.
On the new gas pricing announced on March 10, wherein the price has almost doubled to USD 7 per unit, Sarraf said, “We are very excited as the policy would help us monetise huge quantity of oil and gas. We will get freedom to price gas from its idle discoveries in deepsea, ultra deepsea and high pressure and high-temperature areas.”
Describing the Union Budget as disappointing from an oil and gas industry perspective, Sarraf said the 20 per cent ad valorem oil cess announced by the Finance Minister is too steep. “We were expecting cess to be around 8-10 per cent.”
Commenting on overseas assets, Sarraf said, “We have always been looking at overseas assets, but this is now more challenging than before because of falling crude oil prices.”
On domestic asset acquisitions, he said the government announced the policy to identify assets and “we are looking at the same”. ONGC is set to get the possession of the Ratna and R-series shallow-water oil fields off the Mumbai coast after an interval of about two decades. “We are technically examining how much production can be made from the Ratna field,” he added.