ONGC’s drilling plans hit by lack of deepwater rigs

New Delhi: Public sector exploration major ONGC, which is envisaging an investment of over $5 billion to start production from deepwater blocks in Krishna Godavari basin by 2013, finds that the non-availability of deepwater rigs till mid-2008 is a serious cause for concern.

Speaking to newspersons after the annual general meeting (AGM) here, Mr R.S. Sharma, Chairman and Managing Director, ONGC said, “ONGC is envisaging an investment of over $5 billion to start production from deepwater blocks KG-DWN-98/2 and KG-OS-DW-IV by 2013. Non-availability of deepwater and ultra deepwater rigs in the global market has been a serious impediment in our deepwater campaign.”

Earlier, the production was envisaged to start in 2011. Mr Sharma said, “Non-availability of deep-sea drilling rigs has impacted our plans as no deep-sea drilling rig was available anywhere in the world for hire before 2010. The lead time to build new ones is three years.”

ONGC, as the operator of Block KG-DWN-98/2, had submitted appraisal programmes for the northern discoveries and also the southern ultra deepwater discovery. The appraisal programmes have been reviewed by the management committee and the joint venture has embarked on the appraisal programmes. The appraisal wells would shortly be taken up for drilling, which are envisaged to establish the potential and commercial viability of the block.

A total number of 11 discoveries have been made in the Block, apart from two discoveries G-4 and GS-29 to the north and two discoveries S-1 and Vashista to the west of the block in nomination PEL blocks.

The development programme and the commerciality thereof would be submitted once the appraisal programmes are complete.

The timeline for the appraisal programme for the northern discoveries is July 2010 while it would be December 2009 for the southern ultra-deep discovery.

“However, it is likely that the appraisal drilling programmes would be hampered due to non-availability of deepwater rigs, especially in the ultra deepwater sector as a rig capable of drilling in water depths in excess of 3,000 m would be required,” a senior company official said. ONGC has a fleet of 72 onshore rigs and 30 offshore rigs (including 21 charter hired).

On the financial front, the area of concern for ONGC was the huge subsidy payout which ONGC has to bear. For the fiscal 2007-08 the company has paid Rs 22,001 crore for subsidising domestic LPG and kerosene.

The company’s per barrel realisation post discount during 2007-08 stood at $52.90 a barrel, though before discount it could have been $85.54 a barrel.

“Improving the reserve replacement ratio by intensifying exploratory efforts is the company’s first priority. Improving recovery factor, arresting decline in mature fields and expeditious development of discovered fields are the other priorities,” he said.

ONGC declared Rs 14 a share final dividend for 2007-08, which was over and above Rs 18 a share interim dividend in December. The company is investing Rs 20,499 crore in development of various oil and gas fields across the country.

ONGC is also likely to sign an agreement with Uranium Corporation of India for exploration and exploitation of uranium. He did not rule out the possibility of extending the uranium business.

Mr Sharma said the company may take a bridge loan of $1 billion to partly fund the acquisition of UK-listed Imperial Energy.

OVL, the overseas arm of ONGC, had got Imperial’s Board nod to the Indian company’s bid to purchase the company for $2.59 billion. ONGC will loan the remaining $1.59 billion to OVL. ONGC extends loan to OVL at 6 per cent interest rate.

“We would like to take a loan to bring more credibility to the transaction. Loan could be a mix of local and overseas borrowings,” he said.

He also indicated that ONGC may sell its stake in Indian Oil Corporation and GAIL (India) to fund the purchase.