According to two officials familiar with the matter, the government has formulated a comprehensive action plan to improve state-run Oil and Natural Gas Corporation (ONGC declining) oil and gas output, which includes separating non-core businesses into separate entities, monetising existing facilities, decentralising operational decision-making, and forming alliances with private energy companies.
The government has agreed to reduce India’s over-dependence on imported oil in accordance with the Atmanirbhar Bharat (Self-Reliant India) scheme. By 2023-24, it has set output targets of 40 million metric tonnes (MMT) of crude oil and 50 billion cubic metres (BCM) of gas, with ONGC expected to contribute 70 percent, according to officials who spoke on condition of anonymity. Over 89 percent of the crude oil that India processes comes from outside the country.
“Indian crude oil output has been steadily declining. It’s mostly because ONGC, which accounts for roughly 70% of domestic output, has been unable to ramp up production from existing fields and has been unable to add new fields to the mix. As a result, the action plan,” said one of the official. Although ONGC’s crude oil production dropped to 20.71 million metric tonnes (MMT) in 2019-20 from 21.11 million metric tonnes in 2018-19.
According to a second official, ONGC has been given a deadline of March 31, 2024 to produce 28 MMT of oil and 35 BCM of gas. “As a result, there is an urgent need to restructure and revamp ONGC, so that it can act as a growth engine for exploration and production [E&P] in India,” he said.
In blocks with difficult play but high prospectivity, such as ONGC’s Krishna-Godavari basin block KG-DWN-98/2, the company is also being asked to form partnerships with global players. It was proposed that ONGC bring in technically sound private partners for about 66 major fields, that account for more than 95 percent of domestic output. “Despite the government’s request in February 2019, ONGC has not specified fields for inviting partnerships,” said the second official.
For about 66 major fields that account for more than 95 percent of domestic production, it was suggested that ONGC bring in technically sound private partners. ONGC has not identified fields for inviting collaborations, despite the government’s request in February 2019, according to the second official.
“A professional global advisor should be named to review the finer points of the plan and hammer out specifics in line with industry best practises,” said RS Sharma, former chairman and managing director of ONGC.
The restructuring proposals, according to Gagan Dixit, vice president of equity research firm Elara Capital, would help ONGC increase production. Domestic oil and gas output should, however, be incentivised through lower crude oil cess, and a minimum price floor for domestic gas, he said, in order to draw private and global energy players for joint ventures or field divestment. “Given that global energy giants have the option to invest in a variety of locations outside India,” he said, adding that natural gas should be brought under the goods and services tax regime.
