ONGC to gain Rs 16K crore from gas price hike: Sarraf
5 March 2014 5:37 AM IST
ONGC, the nation’s largest producer of gas at 64 million standard cubic metres per day, will get Rs 16,000 crore in incremental revenue once the gas price rises from $4.2 to about $8 per million British thermal unit (mmBtu), the company’s new Chairman and Managing Director Dinesh K Sarraf told reporters here.
‘Every dollar increase in gas price results in Rs 4,000 crore additional revenue on an annual basis. On a $4 increase, additional revenue would be Rs 16,000 crore and increase in net profit will be Rs 9,600 crore,’ he said. However, most of this additional revenue would flow back to the Government in the form of higher taxes, royalty and dividend.
‘It may appear to be a significant increase but more than one-third of the additional income will go back to the government. Our net retention will be Rs 5,200 crore,’ he said. Sarraf said the higher gas price will make many of ONGC’s gas discoveries on the eastern offshore viable. ‘Our prolific KG-DWN-98/2 block will be now viable.’
The KG-DWN-98/2, which lies close to Reliance Industries Ltd’s (RIL) dwindling KG-D6 block and where gas finds were made more than a decade back, will produce 25-30 mmscmd of gas beginning 2017, he said. ONGC Director (Exploration) N K Verma said that while the new gas price will make discoveries in KG-DWN-98/2 viable, some in Mahanadi basin block will still be unviable to production.
‘In the Mahanadi basin, we have 26 billion cubic metres of gas (less than one trillion cubic feet) reserves which are viable to be produced only if the price is USD 11,’ he said. Like KG-DWN-98/2 where field development plan could not have been prepared at current $4.2 rate, the Mahanadi basin gas finds will have to wait for the right price.
‘Some of the gas may not be produced even at $8. It will be monetised at a later stage,’ Sarraf said. ONGC’s Vashista gas discovery in Krishna Godavari basin was viable at $6.7, he said.
Asked about claims made by AAP that cost of gas production is just $1, he pointed out that production cost is not just operating cost but also exploration cost, development expenditure, facilities expense and interest cost. ONGC’s cost of gas production is about $4 per million British thermal unit and the company ‘hardly made any profit’ at USD 4.2 rate, he said.
‘We believe that price (new gas price from April 1) would be around $8 per mmBtu. It appears to be quite significant but it is not in reality,’ Sarraf said. Some of the discoveries like two in Mahanadi basin made by ONGC are not viable at the new price. ‘But these discoveries at Mahanadi are viable at a gas price of $11 to have a 10 per cent return (on investment),” Verma said.
State-owned ONGC has made 11 discoveries in the deepsea KG-DWN-98/2 block, located next to Reliance Industries Ltd’s KG-D6 block and Gujarat State Petroleum Corporation’s Deendayal gas field. The block is divided into the Northern Discovery Area (NDA) and Southern Discovery Area (SDA). ONGC plans to invest $9 billion in producing from discoveries in NDA.
NDA holds an estimated 92.3 million tons of oil reserves and 97.568 billion cubic meters of in-place gas reserves spread over seven fields. The southern part of the block holds the ultra-deepsea UD-1 discovery that may hold up to 3 trillion cubic feet of gas reserves.
ONGC bought a 90 per cent interest in the block from Cairn India Ltd in 2005. Before selling the stake and giving away operatorship of the block, Cairn made four discoveries in the area — Padmavati, Kanakdurga, N-1 and R-1 (Annapurna).
Later, ONGC made six significant discoveries — E-1, A1, U1, W1, D-1 and KT-1 in NDA and the first ultra-deepwater discovery UD-1 at a record depth of 2,841 metres. The NDA comprises discoveries like Padmawati, Kanadurga, D, E, U, A, while the ultra deepsea UD find lies in SDA.
The KG-DWN-98/2 block, spread over 7,294.6 sq km, was awarded to Cairn in the first round of auction under the New Exploration Licensing Policy (NELP) in April 2000. ONGC holds 3,800.6 sq km in NDA and 3,494 sq km in SDA.
‘Every dollar increase in gas price results in Rs 4,000 crore additional revenue on an annual basis. On a $4 increase, additional revenue would be Rs 16,000 crore and increase in net profit will be Rs 9,600 crore,’ he said. However, most of this additional revenue would flow back to the Government in the form of higher taxes, royalty and dividend.
‘It may appear to be a significant increase but more than one-third of the additional income will go back to the government. Our net retention will be Rs 5,200 crore,’ he said. Sarraf said the higher gas price will make many of ONGC’s gas discoveries on the eastern offshore viable. ‘Our prolific KG-DWN-98/2 block will be now viable.’
The KG-DWN-98/2, which lies close to Reliance Industries Ltd’s (RIL) dwindling KG-D6 block and where gas finds were made more than a decade back, will produce 25-30 mmscmd of gas beginning 2017, he said. ONGC Director (Exploration) N K Verma said that while the new gas price will make discoveries in KG-DWN-98/2 viable, some in Mahanadi basin block will still be unviable to production.
‘In the Mahanadi basin, we have 26 billion cubic metres of gas (less than one trillion cubic feet) reserves which are viable to be produced only if the price is USD 11,’ he said. Like KG-DWN-98/2 where field development plan could not have been prepared at current $4.2 rate, the Mahanadi basin gas finds will have to wait for the right price.
‘Some of the gas may not be produced even at $8. It will be monetised at a later stage,’ Sarraf said. ONGC’s Vashista gas discovery in Krishna Godavari basin was viable at $6.7, he said.
Asked about claims made by AAP that cost of gas production is just $1, he pointed out that production cost is not just operating cost but also exploration cost, development expenditure, facilities expense and interest cost. ONGC’s cost of gas production is about $4 per million British thermal unit and the company ‘hardly made any profit’ at USD 4.2 rate, he said.
‘We believe that price (new gas price from April 1) would be around $8 per mmBtu. It appears to be quite significant but it is not in reality,’ Sarraf said. Some of the discoveries like two in Mahanadi basin made by ONGC are not viable at the new price. ‘But these discoveries at Mahanadi are viable at a gas price of $11 to have a 10 per cent return (on investment),” Verma said.
State-owned ONGC has made 11 discoveries in the deepsea KG-DWN-98/2 block, located next to Reliance Industries Ltd’s KG-D6 block and Gujarat State Petroleum Corporation’s Deendayal gas field. The block is divided into the Northern Discovery Area (NDA) and Southern Discovery Area (SDA). ONGC plans to invest $9 billion in producing from discoveries in NDA.
NDA holds an estimated 92.3 million tons of oil reserves and 97.568 billion cubic meters of in-place gas reserves spread over seven fields. The southern part of the block holds the ultra-deepsea UD-1 discovery that may hold up to 3 trillion cubic feet of gas reserves.
ONGC bought a 90 per cent interest in the block from Cairn India Ltd in 2005. Before selling the stake and giving away operatorship of the block, Cairn made four discoveries in the area — Padmavati, Kanakdurga, N-1 and R-1 (Annapurna).
Later, ONGC made six significant discoveries — E-1, A1, U1, W1, D-1 and KT-1 in NDA and the first ultra-deepwater discovery UD-1 at a record depth of 2,841 metres. The NDA comprises discoveries like Padmawati, Kanadurga, D, E, U, A, while the ultra deepsea UD find lies in SDA.
The KG-DWN-98/2 block, spread over 7,294.6 sq km, was awarded to Cairn in the first round of auction under the New Exploration Licensing Policy (NELP) in April 2000. ONGC holds 3,800.6 sq km in NDA and 3,494 sq km in SDA.
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