ONGC lines up Rs 15,000cr revamp

Restructuring will start with the company's assets in Assam.

Oil and Natural Gas Corporation (ONGC) will revamp its ageing infrastructure at oilfields across the country. The country's largest oil and gas production company will shell out around Rs 15,000 crore for this purpose.

The revamping will start with its assets in Assam. The company will soon float tenders worth Rs 2,500 crore, a senior company executive said. ONGC has three fields in Assam - Rudrasagar, Lakwa and Geleki. The Rudrasagar field is almost 40 years old.

"Replacing the equipment has become paramount as they are decades old. There are frequent leaks in pipelines from producing wells which lead to shutdowns," said the executive.

The crude oil and gas processing plant attached to the Lakwa field is also old. The unit trips if it is run for over five minutes. "Some gas that we can recover is thus lost," the executive added.

Once Assam Renewal Project is completed in three years, ONGC plans to increase oil production from these fields by 20 per cent.

The company produces around 26 million per year of crude oil from its fields in the country with around 1.1 million tonne per year of oil from its three fields in Assam. Earlier, production from Assam was 1.5 million tonne per year

Once the Assam mission is completed, the company will take up the old equipment in the company's fields in Gujarat and the east coast. The Ankleshwar and Cambay fields in Gujarat started production in the mid-1960s.

"We will now inject water and gas into the wells to keep the pressure in the wells intact. However, it could be a little too late as much of the reservoir pressure has already been lost," an ONGC executive from Assam said.

The company will also undertake enhanced oil recovery methods to recover more oil once the water and gas injection project is over. "All of that will require more investments and will take some time," the executive added.

"We must complete these projects to increase production as no major new discoveries have taken place in the last decade," the ONGC executive said.

Reliance, ONGC in talks for sharing of rigs

Traditional competitors Reliance Industries Ltd (RIL) and Oil and Natural Gas Corporation (ONGC) are now working towards co-optition (where competitors work with each other) by sharing infrastructure and facilitating smooth operations in each other’s exploration and production (E&P) activities.

Indications are that RIL may offer rigs to ONGC in two or three locations in 2008-09. These rigs are mainly for undertaking exploration activities. The shortage of rigs for E&P activities has forced the two major players in India to come to the table for sharing rigs.

rig sharing

Speaking to Business Line, Mr D.K. Pande, Director (Exploration), ONGC, said, “We are interacting with each other to see if mechanisms for rig sharing can be worked out. Besides, we are also trying to see that we facilitate smooth operations in each other’s E&P activities in areas where our blocks are adjacent. “RIL rigs could be available only after the private sector player has finished its exploration activities and enters the development phase. The rig requirements for both the companies are different, as the stages of exploration activities vary for them. ONGC currently requires more exploratory rigs in ultra deepwater, whereas RIL has entered into the development phase at its prolific D6 Krishna Godavari (KG) basin block.

hiring charges

Currently, average rig hiring charges are in the range of $4,75,000-5,00,000 per day. The two companies have, till now, been following the system of hiring their own rigs instead of sharing them. But with the international market dynamics showing scarcity in rig availability, the two players are looking at joining forces.

On how the two propose to facilitate smooth functioning of each other’s operations, sources said, “The two companies have decided to cooperate by not interfering in each other’s activities by adjusting their operations”. While RIL is in the process of constructing its pipeline for transporting its D6 KG basin gas to the delivery point, in the adjacent block in the same basin ONGC is undertaking its seismic activities. Thus, the two have decided to cooperate for facilitating smooth operations, as cost involved are also huge, sources said.
discoveries

ONGC, which has been drawing flak for going slow on its E&P activities, has already made 18 discoveries in its various acreages during the current fiscal. The company, which already has its own fleet of rigs, has been in talks with global oil firms for rigs for drilling appraisal wells in its successful assets in Mahanadi and Krishna Godavari basins including ultra deepwater wells. ONGC has to drill close to six-eight appraisal wells.

ONGC seeks Rs 16,000 cr sops for Kakinada refinery

Oil and Natural Gas Corporation (ONGC), the country’s largest oil and gas company, has sought up to Rs 16,000 crore worth of incentives from the Andhra Pradesh government for making the proposed 15 million tonne per annum (mtpa) refinery-cum-mega petrochemical complex at Kakinada viable.

The incentives sought are for over a period of eight years. This means the incentives in the form of tax holidays and free land work out to Rs 2,000 crore per month.

“Taking everything else into consideration, the state government has to give various incentives to make the project viable,” said ONGC’s director for business development AK Balyan.

It is the state government, in fact, that has been lobbying for the refinery, but ONGC is not keen to invest without the incentives which include almost 950 hectares of free land for the project. ONGC also wants exemption from sales tax on sale of petroleum and petrochemical products, free power and water supply during construction phase and road and rail connectivity.

“We will only go ahead if the state government offers us the incentives we have asked for,” said another senior ONGC official.

ONGC’s subsidiary Mangalore Refinery holds 26 per cent stake in Kakinada Refinery Petrochemicals Ltd (KRPL), the company set up to implement the refinery project. IL&FS holds 51 per cent stake and the balance is with the Andhra Pradesh government.

The UK-based Hinduja group is also expected to pick up a stake in the refinery. Former ONGC chairman Subir Raha, who had conceptualised the Kakinada refinery, is now the executive vice-chairman of the Hinduja group.

UPSIDE FROM PETROCHEM

Balyan said that with the incentives, and the petrochemical complex, the Kakinada refinery would be feasible. The petrochemical complex, planned to be of a capacity of 1 mtpa, would be the driving force behind the project. “The margins from petrochemicals are good and that should make the project financially feasible,” Balyan said.

The petrochemical industry, which is cyclical in nature, is expected to go through a downturn from 2009 to 2013. Balyan said that even during the downturn the margins from the proposed plant would be positive.

Investment in the proposed petrochemical plant would be in addition to the Rs 25,600 crore that is expected to be spent on building the refinery.

“Products from the refinery can be exported to the east Asian countries. There is a market there,” Balyan said.

Analysts tracking the sector, however, feel that a refinery in the country’s east coast is not very well suited to export petroleum products. “The countries there are already well fed by the Singapore refineries,” an analyst with a global advisory firm said.

Earlier this week, ONGC Chairman and Managing Director RS Sharma said that at a capacity of 15 mtpa, rate of return on investment would be 10.27 per cent, which would become negative in case of a 10 per cent rise in capital cost.

OVL-Hinduja plan $20 bn investment

Oil and Natural Gas Corporation (ONGC), the country’s largest oil exploration company, and the UK-based Hinduja group is lining up investment of close to $20 billion (around Rs 80,000 crore) in exploration assests in Iran and a refinery and LNG terminal in India.

Senior officials in ONGC’s overseas investment arm ONGC Videsh (OVL) and the Hinduja group held two rounds of discussions with Iranian officials in New Delhi late today.

“We are in negotiations,” said Subir Raha, executive vice-chairman of the Hinduja group.

He added that if the negotiations are successful, the total investment from the exploration fields in Iran right down to marketing of gas in India would work out to around $20 billion.

Of the $20 billion, around $10 billion will be invested in upstream assets in Iran, a country in which Indian companies have interest in just one asset — the Farsi block where both oil and gas have been discovered by OVL, Oil India and Indian Oil Corporation.

Studies to establish commercial viability of the reserves in the block are currently being carried out.

The OVL-Hinduja combine is eyeing the gigantic South Pars field in Iran, the country with the world’s second largest gas reserves.

Gas from the South Pars field was also to feed the proposed $7.2 billion pipeline from Iran to India through Pakistan.

The consortium, which had also signed a memorandum of understanding in late 2006 for collaboration in the oil and gas sector, is also keen to develop the Azadegan oilfield in Iran, which is projected to hold over 40 billion barrels of oil.

The consortium is expected to get over 50 per cent in Phase 12 of the South Pars field, which could produce as much as 12 million tonnes of gas per year.

“We also want at least 50 per cent in the Azadegan field,” a senior ONGC official said.

The gas from the South Pars field will be liquefied in a terminal in Iran, and shipped to India.

The combine plans to set up LNG regassification terminal at Mangalore on the west coast of India to receive the gas, and then distribute it.

A 5 million tonne a year (mtpa) LNG regassification terminal is already being planned by ONGC and its subsidiary Mangalore Refinery and Petrochemical Ltd (MRPL) in Mangalore.

The Hinduja group is also expected to pick up a stake in ONGC’s proposed 15 mtpa crude oil refinery at Kakinada in Andhra Pradesh. The financial feasibility study for the refinery is underway and a final report is expected in the next couple of weeks.

An ONGC official said a stake in the Rs 25,000 crore (around $6.25 billion) refinery was likely to be offered to an Iranian company but declined to give the name of the company.

ONGC officials has previously said that the refinery was not financially feasible since another 7.5 mtpa Hindustan Petroleum Corporation-operated refinery exists at Vishakapatnam, which is near Kakinada.

Another 15 mtpa refinery is likely to be set up alongside the existing refinery in Vishakapatnam.

Although the Kakinada refinery is being planned as an export-oriented one, analysts said the export potential from a refinery on the east coast was not very high as the markets in India’s east are already fed by the Singapore refineries.

ONGC-Mittal JV bags block in Trinidad

The combine had earlier won two blocks in Nigeria

Steel baron Lakshmi N Mittal’s joint venture with ONGC Videsh (OVL) has won an exploration block with estimated gas reserves of two trillion cubic feet (tcf) in Trinidad and Tobago.

ONGC-Mittal Energy beat UK’s Centrica to bag the offshore block, a company official said.

OMEL, the 51:49 joint venture between Mittal Energy and the overseas investment arm of state-run Oil and Natural Gas Corp (ONGC), made a revised financial commitment of about $204 million to win the block.

In January 2006, Trinidad and Tobago offered eight onshore and three shallow marine blocks for bidding. OMEL made an initial bid of about $175 million, including signature bonus. It later emerged that Centrica and a consortium led by BG of the UK had also submitted bids for the block.

“OMEL was informed that there was a tie in the bids of OMEL and Centrica, and OMEL was asked to submit a revised bid,” the official said.

The bid parameters were reviewed by OVL and OMEL in consultation with technical advisors and a revised bid for the block with increase in the minimum financial exposure to OMEL from about $175 million to about $204 million was submitted.

The Trinidad and Tobago government has informed that OMEL’s revised bid had been successful and it had invited the company to negotiate the production sharing contract for the block.

The official said though it was earlier decided that a part of the equity would be shared with other Indian companies considering the level of investment and risk involved, OMEL decided not to farm-out any equity at this stage.

“OMEL will hold 100 per cent participating interest in the block.”

This is OMEL’s second biggest success after Nigeria where it had acquired two exploration blocks.

Mittal had inked a joint venture agreement with ONGC Videsh in July 2005 for acquisition of oil and gas fields, refinery business and LNG projects in 27 countries.

The July 2005 agreement had classified target countries into Schedule-I and II. Mittal and ONGC had agreed to participate on an exclusive basis through OMEL in Schedule-I countries such as Angola, Azerbaijan, Indonesia, Kazakhstan, Romania, Trinidad and Tobago, Turkmenistan and Uzbekistan.

In Schedule-II, the partners agreed to bid jointly on a case-to-case basis in Bosnia, Canada, China, Czech Republic, France, Germany, Kyrgyzstan, Liberia, Sudan, Macedonia, Mexico, Nigeria, Poland, South Africa, the UK and the US.

“OMEL is looking for various opportunities in Kazakhstan, Turkeministan, Azerbaijan, Indonesia, which are at different stages of progress,” the official said.

Since incorporation, OMEL has been awarded two prosperous blocks in Nigeria – OPL-279 and OPL-285, the production sharing contracts of which are expected to be signed shortly.

OMEL is also in the process of being awarded another exploration block in Nigeria (OPL-246).

OVL’s subsidiary, ONGC Nile Ganga BV acquired interest in a producing property in Syria along with China National Petroleum Corp, a part of which is held by OMEL. OMEL also recently bagged a block in Turkmenistan.

ONGC Videsh wins two exploration blocks in Brazil

Oil & Natural Gas Corporation has announced that OVL bagged two exploration blocks in Brazil, viz. deepwater block 470 in the highly prospective espirito santo basin and shallow water block 1413 in another highly prospective Santos basin, amid stiff competition from International companies on 27 November 2007.

The first development well for coal bed methane (CBM) has been spudded on December 2007 at the drill-site Pad-B in Parbatpur, near Bokaro Steel City of Jharkhand.

ONGC achieved the unique distinction of becoming the first-ever Indian company in the Fortune Magazine's annual (2007) list of the world's most admired companies. This is based on a survey of Fortune Companies across the globe, conducted by the Fortune magazine, in association with Hay Group.

The board has approved the 2nd pipeline replacement project along with necessary modifications, at a cost of Rs 2553.25 crore, to be implemented over a period of 3 years.

The ONGC board approved the phase-III development of PY-3 field at a Capex of US$ 35.9 million (Rs 147.19 crore), which is 40% of the total investment of US$ 89.75 million. ONGC holds 40% stake in the field; other stakeholders are HOEC (21%), Tata Petrodyne (21%) and Hardy Exploration & Production (18%). This phase-III development of the field will enhance the recovery by 10.52 MMSTB.

The company made this announcement during the trading hours today, 24 December 2007.

ONGC to invest Rs 1,200 cr for wind energy

Suzlon to help set up one of the facilities in Gujarat

Oil and Natural Gas Corporation (ONGC), the country’s leading oil and gas exploration and production company, is entering the alternative energy segment with a Rs 1,200 crore-plus investment to generate 200 mw of wind power for captive use, within two years.

The company has already placed orders with the Pune-based Suzlon Energy, the world’s fifth-largest producer of wind mills, for 50 mw of wind turbine capacity to be installed in Gujarat’s Kutch region.

“We have placed orders for 50 mw and will soon install another 50 mw in Karnataka. Within the next year, ONGC will add another 100 mw and is exploring options in Maharashtra and other states,” said Anoop Kumar Mathur, general manager (technical), ONGC.

The oil and gas exploration major is in talks with respective state governments for wheeling the electricity for captive consumption. “In Gujarat, the electricity generated will be used to power the sucker road pumps, used in enhanced oil recovery from our old oil fields in Kutch,” said Mathur.

The company has approved the 50 mw unit in Karnataka and is in the process of finalising the location. Andhra Pradesh and Maharashtra were the other two states where ONGC was considering wind energy units, he said.

Initiated by the ONGC Energy Centre Trust, the company is working on three projects - a thermo-chemical reactor for hydrogen, geo-bio reactors and fuel cells - to develop renewable energy resources.

ONGC is also developing a 740 mw plant at Palathana in Tripura, primarily to utilise its idle gas reserves. The project is scheduled to be commissioned only by 2010.

Meanwhile, a Suzlon statement said the company would supply 34 units of Suzlon’s S82 - 1.5 mw turbines to ONGC for the project in Kutch. The order also covers operation and maintenance for the project for a period of ten years.