Govt readies action plan to boost ONGC’s production
In lines with the Atmanirbhar Bharat (Self-reliant India) policy, the government has decided to reduce India’s over-reliance on imported oil.
The government has proposed a detailed action plan to boost the dwindling oil and gas production of state-run Oil and Natural Gas Corporation (ONGC) that includes hiving off non-core businesses into separate companies, monetising existing infrastructure, decentralisation of decision-making on operational matters and partnerships with private energy majors, two officials familiar with the matter said on Monday.
In lines with the Atmanirbhar Bharat (Self-reliant India) policy, the government has decided to reduce India’s over-reliance on imported oil. It has set production targets of 40 million metric tonnes (MMT) of crude oil, and 50 billion cubic meters (BCM) of gas by 2023-24 where ONGC is tasked to contribute 70%, the officials said requesting anonymity. India imported over 89% of crude oil it processed in 2019-20.
“India’s domestic crude oil production is constantly on a decline. It is mainly because ONGC, which contributes about 70% of the domestic output, is unable to ramp up production from existing fields and could not add new fields under production. Hence, the action plan,” one official said. While ONGC’s crude oil output fell to 20.71 MMT in 2019-20 from 21.11 MMT in 2018-19, natural gas production declined to 23.85 BCM in 2019-20 compared to 24.75 BCM in previous year.
ONGC is given a target to achieve 28 MMT of oil and 35 BCM of gas production by March 31, 2024, a second official said. “Therefore, there is an urgent need to restructure and revamp ONGC to enable it to function as an engine of exploration of production [E&P] growth in lndia,” he said.
According to a note giving details of the restructuring proposal, ONGC is asked to hive off its non-core businesses into separate companies. Given its experience in every sphere of E&P, ONGC may explore creating separate entities for drilling, well services, logging, work-over services and data processing entities through various modes, such as start-ups, investment trusts, societies and companies, it said. HT reviewed the note.
ONGC is also asked to forge partnerships with global players in blocks with difficult play, but high prospectivity such as its Krishna-Godavari basin block called KG-DWN-98/2.
It proposed that ONGC could bring in technically sound private partners for about 66 major fields that contribute over 95% of the domestic production. “ONGC has not identified fields for inviting partnerships even as the government asked it to do so in February 2019,” the second official said.
The restructuring proposal also asked ONGC board of directors to empower asset managers. “Assets may be empowered to act like a small companies, and all powers and functions of board related to operational decisions of assets may be delegated to asset managers so that they can deploy the resources as per their requirements for expeditious monetisation of discoveries and further exploration,” it said.
The production in ONGC is organised through 15 assets, 10 in onshore and five in the offshore. “Board of Directors should act as enablers for Asset Managers in achieving their targets through policy guidelines, coordinating with Government and providing strategic guidance from Group point of,” the note said.
RS Sharma, former chairman and managing director of ONGC said, “A competent global advisor should be appointed to study finer points of the proposal and work out details in lines with industry best practices.”
Gagan Dixit, vice president at equity research firm Elara Capital said the restructuring proposals will help to boost ONGC output. But, in order to attract private and global energy players for joint ventures or divestment of fields, domestic oil and gas production should be incentivised through lower cess on crude oil and minimum price floor for domestic gas, he said. “Given global energy majors have option to invest in many destinations outside India, domestic oil and gas tax regime should be made competitive,” he said, adding that natural gas should be brought under the goods and services tax regime.