| Date: |
05-09-2015 |
| Subject: |
ONGC, Oil India under pressure to raise output, make profit despite crude price slide |
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NEW DELHI: Indian state firms are pushing ahead with exploration efforts, bucking the global trend of lower capital expenditure in the wake of the crash in crude oil prices, as they face intense pressure from the government to raise domestic output and production remains profitable for them even at the current price levels. The marginal decline in India's oil and gas production in 2014-15 has continued in the four months of the current fiscal year, posing a challenge to Prime Minister Narendra Modi's plan to cut the country's oil imports by a tenth by 2022.
This has put state-run Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), which make up twothirds of local oil production, under increased pressure to explore and produce more. ONGC and OIL are going ahead with their planned capital expenditure for 2015-16, company executives said.
By contrast, Cairn India, controlled by billionaire Anil Agarwal, has slashed 2015-16 capital expenditure by 60% and intends to produce only from wells that are viable at $55 a barrel.
This is in line with the steps by global majors to shelve projects unviable at lower prices and slash capital expenditure and jobs, following the crude oil crash. The prices have halved in a year to about $47 a barrel due to a supply glut and a slowing demand from energy-guzzler China.
But ONGC and OIL are not amending plans to produce or explore because the current prices are still remunerative for them. The average cost of production for ONGC and OIL is about $37 a barrel, which is still significantly lower than their selling price, a senior government official said. "So, as long as the realization stays above the cost, there is no need to relook at their production plans."
For ONGC, the net realization in the three months to June 2015 rose to $58.92 a barrel from $47.15 in the year-ago quarter. Instead of declining, the net realization has risen for ONGC because its subsidy burden has fallen due to oil crash and deregulation of petrol and diesel.
ONGC and OIL have to offer crude oil at a discount to state refiners to help them sell fuel at government rates. The need for this has nearly evaporated.
Step on the gas and oil
We do need to step up exploration and production (E&P). Many of our 26 sedimentary basins remain practically unexplored. Estimates suggest that over I billion tonnes of crude oil and up to a trillion cubic metres of natural gas may be in situ in Indian waters. What's required is a world-class licensing regime and operational norms complete with reliable geophysical data, akin to those in the mature licensing regimes overseas. To boost our oil security, we also need to invest in E&P activity abroad.
Source : economictimes.indiatimes.com
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