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Oil and Natural Gas Corp. Ltd (ONGC) expects its revenue to rise by INR 16,000 crore once domestic gas prices increase from 1 April. The expected price of around $8 per million British thermal units (mBtu) is a significant increase from the current prices of between $3.5 and $5.73 per mBtu. This will result in a net profit of INR 9,600 crore to the country’s largest oil and gas explorer.

“It may be a significant increase. After payment of dividend and dividend tax, we will be left with around INR 5,200 crore,” said Dinesh K. Sarraf, the new chairman and managing director of ONGC. The explorer’s net profit fell 16.7 Percent in the year ended 31.03.2013 to INR 20,926 crore on account of its subsidy burden hitting a record INR 49,421 crore. Revenue increased 8.4 Percent to INR 82,552 crore. The average cost of production from ONGC blocks is between $3-4 per mBtu. The firm had total oil and gas reserves of 1,759 million tonnes of oil equivalent (mtoe) as on 31 March.

The state-controlled company has been battling concerns over its production capabilities and diminishing yields at its ageing oil fields. While ONGC’s domestic reserves increased to 1,287 mtoe in 2011-12 from 1,243 mtoe in 2010-11, its production declined to 52.4 mt from 52.6 mt in that period. ONGC produced 26.12 mt crude in 2012-13, against 26.92 mt in the previous fiscal. Gas production fell to 25.33 billion cu. m (bcm) from 25.51 bcm.

The company is striving to get more out of its old fields, said Sarraf, and it expects a significant proportion of its production in the future to come from overseas assets. According to ONGC’s Perspective Plan 2030, the company is targeting production of more than 130 mtoe in 2030, of which half will come from assets owned by ONGC Videsh Ltd (OVL). ONGC plans to start production from its KG-DWN-98/2 block, adjacent to Reliance Industries Ltd’s (RIL) D6 field (KG-DWN-98/3) in the Krishna-Godavari basin in Andhra Pradesh by 2017. “The feasibility study of the 98/2 block is on,” said Narendra Kumar Verma, director, exploration at ONGC.

The block is also at the centre of a controversy with ONGC wanting to be compensated if it is established that RIL drew gas from a reservoir that overlaps the two companies’ fields. ONGC claims RIL drilled four wells as close as 200 metres of the boundary of ONGC’s KG-DWN-98/2 block. RIL has revised the recoverable reserves from D1 and D3 discoveries in the KG basin to 3.4 trillion cu. ft (tcf) of gas; ONGC estimates its block to hold 4.85 tcf.

While a RIL spokesperson didn’t respond to a query on the issue, ONGC’s Verma said, “We have raised the issue with RIL. There are four wells drilled by RIL which are very close to our boundary. They are around 200-300 metres distance from our block’s periphery. This is the apprehension we have. These kind of processes take time. Let the government appoint a third-party assessor.”

ONGC had written to India’s Directorate General of Hydrocarbons (DGH) raising the possibility of RIL drawing gas from blocks allocated to ONGC. The company has been unable to produce from the deepwater field off the coast of Andhra Pradesh and has been scouting for a partner after Statoil and Brazil’s Petroleo Brasileiro SA (Petrobras) quit the consortium.

ONGC has a capital expenditure plan of Rs.35,000 crore for this fiscal. The explorer invested INR 22,700 crore during the 10th Plan (2002-07) and increased it to Rs.1.7 trillion in the 11th Plan (2007-12). It plans to spend Rs.2.65 trillion in the ongoing 12th Plan (2012-17).

Source-On Request