India’s crude oil production falls 7% in May, pushes import dependence to 85%
India’s crude oil production in May this year fell 7 per cent to 2,800 Thousand Metric Tonne (TMT) due to fall in production from fields operated by Oil and Natural Gas Corporation (ONGC), Oil India and private operators. The fall in domestic crude oil production pushed the country’s crude oil import dependence to 85 per cent in the month as compared to 83.8 per cent recorded in the corresponding month a year ago. ONGC, the country’s largest producer of oil and natural gas today invited private participation to help the company boost hydrocarbon production from 64 nomination marginal fields. Cumulatively, domestic crude oil production decreased 7 percent to 5,519 TMT during the first two months (April-May) of the current financial year (2019-2020), as compared to the corresponding period a year ago. ONGC ONGC’s crude oil production in May fell more than 4 percent to 1760 TMT. Cumulatively the company’s domestic crude oil production in the first two months of the present financial year fell 5 percent to 3,450 TMT. According to the oil ministry, major reasons for lower production were less offtake by consumers in Tripura, Cauvery, and Rajahmundry. Oil India Oil India, the second government-owned oil and gas explorer posted a 4 percent fall in its oil production to 274 TMT. Cumulatively, the company’s crude oil production during the first two months of the current financial year dropped 4 percent to 539 TMT. The major reasons for the slippage were less than the planned contribution from work over wells and drilling wells. Pvt/ Joint Ventures Crude oil production from private players and Joint Ventures (JVs) fell 13 percent to 767 TMT during the month of May. Cumulatively production by this segment dropped 12 percent to 1,529 TMT during the first two months of the current fiscal. The drop in production is attributed to lower production from Cairn Oil and Gas fields in Mangala, Bhagyam, Aishwariya and Raageshwari Deep Gas (RDG) due to operational issues and delays.
ONGC plans exploratory drilling in 12 Gujarat blocks
Oil and Natural Gas Corp Ltd plans to invest around 5 bln rupees on drilling 46 exploratory wells in 12 of its producing mining lease blocks in Gujarat in the Cambay basin, a senior company official told Cogencis. All the proposed wells would be drilled in areas falling in the Mehsana district. These 46 wells would be spread over an area of around 450 sq km. An exploratory well is a test well drilled to locate recoverable oil and gas reserves. If hydrocarbons are discovered through an exploratory well, it is followed by drilling of development wells to extract oil and gas. The depths of these 46 wells would vary between 2,000 mtr and 3,000 mtr and the duration of drilling is seen at three to four months per well, said the official, who did not wish to be named. ONGC expects to receive all government clearances for the project within a couple of months, following which it will start the work. The project is part of ONGC’s efforts to raise domestic oil and gas output in a bid to reduce dependence on imports. India is among the biggest consumers of crude oil but meets over 83% of its requirement through imports, leading to outflow of valuable foreign exchange. The government has been pushing upstream companies to increase exploration and production of hydrocarbons. ONGC, being the largest upstream company in the country, is at the centre of this effort. ONGC produces around 70% of the country’s crude oil and 60% of its natural gas. In this project, the blocks where drilling is planned are Jotana, Linch, Nandasan, North Shobhasan Extension, Jotana-Warason, Kadi, Linch Extension-1, Linch Extension-2, Mansa, Jakasana, East Shobhasan, and Bhalol Extension. ONGC owns 100% stake in all these blocks. ONGC has already drilled over 500 wells in the region, including many exploratory wells, and the hydrocarbon reserve data from these has been quite encouraging. The company feels that there is still a lot of scope in exploring new sub-surface structures in the basin, for which this project has been planned. At 1237 IST, shares of ONGC were 0.3% higher at 152.80 rupees on the National Stock Exchange.
Challenges await implementation of PNGRB’s concept paper on tariff determination: ICRA
The Petroleum and Natural Gas Regulatory Board (PNGRB), had granted exclusive marketing rights to certain pre-existing CGD networks, post its formation, for a limited period. These CGDs have reached the end of the timeframe for exemption from the purview of a common contract carrier. Hence, PNGRB has formulated a concept paper to determine a process to open up these CGD networks to competition with the intention of promoting fair competition and efficient use of resources while also protecting the interests of the consumers. This regulation will not be applicable to entities that have pre-determined transportation rates as part of the PNGRB bidding process for authorisation, carried out in the ten rounds of bidding until now. The concept paper talks about two options for determining the transportation rate – 1) The Cost of Service methodology allowing for a post-tax normative return on equity of 14%. Or 2) A transparent online bidding process based on a fixed reserve price or based on a self-determined reserve price by the company concerned. Ankit Patel, Vice President and Co-Head, Corporate Ratings, ICRA, “We have analysed the impact of the above regulation on the incumbents if the Cost of Service methodology is implemented for major incumbents. The findings indicate that about 65%-75% of the contribution of these entities can be met from the recovery of the network tariff. The rest of the contribution is generated from marketing/commodity margins.” ICRA believes that the impact of third-party competition to existing operators could be more pronounced in the PNG (Industrial) segment as the larger absolute volumes and the ease of tying up directly with a group of industrial customers would be relatively easier compared to the CNG segment, where domestic gas allocation needs to be sought to have a number of end-consumers. For the PNG industrial volume, large single location opportunities (Morbi, Ankleshwar-Bharuch, Ahmedabad) with high penetration of gas are attractive for competition. Nonetheless, the CNG segment too could be vulnerable in cities where there are bulk consumers such as State Transport Corporations, which can be weaned away at a lower tariff. Key operational challenges will be the strong promoter backing of authorised players (transmission network owned by GSPL/GAIL in case of GGL, IGL, AGL and MGL) and the complexity involved in giving access to the third party in terms of the variation in gas demand, requirement of multiple contracts to be signed and determination of idle capacity in different parts of the city/region, etc. “The oil marketing companies (OMCs) would be the most immediate interested entities for third party marketing as they have access to gas as well as an already existing network of retail outlets. The OMCs would especially be interested in direct sales of CNG in metro areas if they find it a large enough opportunity with a reasonable margin. Nonetheless, as a key risk mitigant, many of the incumbent CGD operators have signed medium to long-term agreements with the OMCs for co-locating their CNG stations at attractive marketing margins; moreover, some of the OMCs are also either the majority or the minority shareholders in these CGD entities,” Patel added. As regards the overall impact of the concept paper and its implementation over the long term, K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA said, “We believe that while PNGRB has rolled out this concept paper and invited comments from the public, the PNGRB Act, 2006 itself may require amendments in light of the Supreme Court order dated July 1, 2015, in IGL Vs PNGRB case on the powers of the Board to fix tariffs. There is also a possibility that the existing players may challenge the final regulation in courts, which could delay it further. Hence, credit profiles of authorized entities would not be immediately impacted. While competition could intensify over the medium to long term, operational challenges, such as determination of surplus capacity and access code will require resolution for the actual materialization of third-party competition in the CGD business.”
Govt likely to give up direct controlling stakes in ONGC, IOC, NTPC, GAIL
India will likely give up direct control of its most-profitable state-run behemoths as Prime Minister Narendra Modi seeks to keep the budget deficit in check, while reviving investments to spur economic growth. The government has identified the biggest energy companies such as Oil & Natural Gas Corp., Indian Oil Corp., NTPC Ltd. and GAIL India Ltd. as probable candidates for cutting its direct holding to below 51 percent, Atanu Chakraborty, who steers Modi’s asset sale department, said in an interview Monday in New Delhi. “Government’s indirect holding, through arms such as Life Insurance Corp. of India, will stay above 51%.” Finance Minister Nirmala Sitharaman last week set a record Rs 1.05 trillion ($15 billion) asset sales target in the year started April 1, while proposing to raise taxes on the wealthy, extract higher dividends from the central bank and increase duties on gold and gasoline to boost revenue and lower the budget gap to 3.3% of gross domestic product. The proposal to lower direct holdings in some state-run companies below 51% was also part of Sitharaman’s budget proposals, which she said would be considered on “case-to-case basis.” “The government has to consider bringing in strategic investors and give them a say in the management,” said Deven Choksey, managing director at K.R. Choksey Shares and Securities Pvt. in Mumbai. “That will spur the growth of these companies.” The index for state-run companies on BSE Ltd. has gained 3.5% so far this year compared to a 7.1% gain in the broader benchmark S&P BSE Sensex. Indian Oil shares on Tuesday added 4.6%, while ONGC rose 0.1% and NTPC slid 0.3% as of 12:45 p.m. in Mumbai. In 2017, then-Finance Minister Arun Jaitley aimed to create an integrated public sector oil major to match the might of the international oil and gas giants by combining some or all of its stakes in listed domestic oil and gas firms. ONGC in January 2018 completed buying the government’s 51.1% stake in Hindustan Petroleum Corp. for $5.78 billion, helping the government to narrow the nation’s budget gap. Some of the state stake sales will happen this year, Chakraborty, secretary at the Department of Investment and Public Asset Management, said. Exchange-traded funds are the most attractive route, he said.