Can the government bank on the ONGC to cut crude imports?

Published: March 31, 2016 - 18:17

Hardnews Bureau Delhi

The NDA government aims to reduce India’s crude oil import dependence by 10 per cent by 2022 in order to boost energy security. However, the plan seems to be a non-starter with state-owned ONGC, which contributes two-thirds of the country’s crude oil production, struggling just to maintain a stable level of output.

For example, crude oil production from ONGC-operated fields shrunk to 22.26 million metric tonne (mmt) in 2014-15 from 22.56 mmt in 2012-13, though the company made an aggregated capital expenditure of nearly Rs 1 lakh crore during the three years.

ONGC management trumpets that the company’s reserve replacement ratio (RRR) continues to stay above 1, which means it is adding more reserves of oil and gas than it is producing. However, it ignores the harsh reality that the RRR is a reflection of the delay in converting reserves into production and not of any robust pace of reserve accretion.

ONGC’s cumulative production during April 2015-February 2016 at 20,497.88 thousand metric tonnes was 1.18 percent lower than the envisaged target for the period, though 0.90 per cent higher than the production during the corresponding period of last year.

ONGC has made promising discoveries in the K-G basin. Instead of starting production from its discoveries, ONGC has been spending huge amounts to reduce output decline from its aging oil fields.

Although ONGC is billed as the mainstay of India’s energy security, the company management showed no compunction in delaying production from its deep-water block as an alleged tactic to put pressure on the government to increase gas prices.  The company did not bother to think of the consequences of its delaying tactic which meant increased dependence on costly LNG.

If that is how ONGC wants to operate in the name of protecting shareholders’ interests, how is it any different from private players? It also gives rise to the question as to why the government should pamper a company that keeps its commercial interests above national interests.

What also does not inspire confidence about ONGC’s ability to reduce crude oil import dependence is its inefficient handling of exploration operations.

As CAG’s latest audit report on ONGC’s utilisation of rigs reveals, the company had to make a expenditure of Rs 1,577.27 crore  just to correct mistakes committed by its drilling personnel in 2008 and 2009.ONGC's rig Sagar Vijay was deployed for drilling in violation of safety guidelines and failed to carry out assigned work. Not only that, it also created an environmental mess.

The proof of the pudding lies in the stark fact that United India Insurance Company refused to accept ONGC’s insurance claim of Rs 132 crore on the ground that the company’s rig Sagar Vijay was deployed for drilling in violation of safety guidelines, according to the CAG audit report titled, “Utilisation of Rigs in Oil and Natural Gas Corporation Ltd”.