ONGC escapes crude oil fall impact

New Delhi, March 11: Come the first of next month, and ONGC was to get paid 75 per cent of the global crude price for its production, instea...

New Delhi, March 11: Come the first of next month, and ONGC was to get paid 75 per cent of the global crude price for its production, instead of the fixed price that it gets currently. Under the plan for dismantling the administered price mechanism (APM) that governs the petroleum sector in the country, ONGC would get the full international price after four years.

While that would be a big bonanza for the oil producer, the problem is that global prices have fallen to such a low that had this formula been strictly followed, ONGC would have actually lost out. While it gets around $12.5 per barrel currently (including the royalty and cess), global prices are currently in the region of $13 — in other words, it would have got paid a sum of $9.75 per barrel, or a fifth lower than what they get at present.

Aware of this possibility, since global oil prices have been falling for several months now, ONGC approached the ministry of petroleum for help. After a series of meetings, the ministry decided to add arider to the original policy of dismantling of the APM.

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The new rider states that ONGC (and OIL) will get paid a price equal to 75 per cent of the prevailing global price (in the first year) or the existing fixed price, whichever is higher.

According to ONGC’s chief B.C. Bora, they argued that if the prices they received were to fall drastically, this would hamper their exploration efforts. It was this that convinced the ministry to decide to protect ONGC from the impact of the sharp volatility in global prices.

ONGC deep-water plans take a soaking

NEW DELHI: Even before it has begun its expensive foray into the country’s deep waters for oil-exploration, ONGC has been forced to alter its plans. While it had originally planned to drill two exploratory wells in the Kerala-Konkan coast, ONGC has now decided to re-work its plans and drill the first well off the eastern coast instead. It has deployed its rig, Sagar Vijay, on the country’s easterncoast in the Krishna Godavri basin. The new well, which is around 10 kilometres from the existing G1 well, is around 570 metres deep. Under the original schedule, ONGC was to drill two exploratory wells in the Kerala Konkan region, beginning January this year.

According to ONGC officials, this, however, was not possible as there was a delay in upgrading the rig at the Cochin shipyard. Since the impending monsoon over the west coast would give ONGC very little time to go about its operations, it had to re-schedule operations there. It now plans to return to the west coast towards the end of the year.

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Since ONGC does not have the necessary expertise for deep-water drilling, it has hired Sedco Forex of the US to operate and maintain its rig at a fee of $28,000 (Rs 11 lakh) per day.

The success of the deep-water efforts are critical for ONGC as it has not found enough fresh reserves for a fairly long period of time. During the first three years of the 8th plan, for instance, they added only 246 milliontonnes ogical reserves, or a fifth of the total planned target.