It had been one long, demanding day involving travel, meetings and review of projects for Sudhir Vasudeva, chairman and managing director of Oil and Natural Gas Corporation Ltd. when he sat down for an interview with The Hindu at Karaikal recently. Showing little signs of fatigue the head of the country’s largest exploration and production company discussed issues facing ONGC and growth plans. Excerpts:

How was 2012-13 for ONGC?

It was good in the sense that we got MoU rating of excellent. Last four, five years we have not been getting the excellent rating. The rating goes into PRP, which is performance related pay to employees. Sixty per cent of marks or weightage is given to MoU performance when deciding the PRP. Forty per cent of the PRP is composed of incremental profits [which] happen only because of the oil price. Our production has been almost stagnant for the last 4-5 years and all said and done, the oil prices are the same. If the subsidy burden [ONGC shares a portion of oil marketing companies’ under-recovery] keeps increasing you can never show incremental profit.

As regards production?

You cannot keep increasing production year to year because we are producing from 110 fields. Of them, 15 contribute 73 per cent of the production. These fields are old. Bombay High is 37 years old, Ankleshwar and Rudrasagar are 52 years old. You cannot expect production to increase from all these fields. The production is falling at a very rapid pace.

We have taken lot of efforts. Twentyone improved oil recovery and enhanced oil recovery schemes have been launched. These cost something like Rs.40,000 crore. Of that, Rs.30,000 crore has been spent and the balance is committed. This will result in additional production of 172 million tonnes over the life of these fields. Out of that, 70 odd million tonne had been produced in the last ten years.

The IOR and EOR component is contributing about eight million tonnes of our production today. Had we not conceptualised the schemes, our production would be eight million tonnes less. Such efforts make the production look stagnant [at a time] when the production worldwide is falling 7-8 per cent.

How much is your share in the under-recovery compensation package?

Last year (2011-12) we paid Rs.44,466 crore to OMCs. In 2012-13, we will be ending up paying something like Rs.50,000 crore. All these companies get outstanding in MoU. We are the ones who pay them and don’t get outstanding. So this is the paradox.

What is the root cause?

It is the international price. OMCs are importing 75 per cent, balance they are purchasing at a very big discount. Finance Ministry says you have to give a discount of $56 a barrel of oil produced. In that they are also adding condensate which we produce. Condensate is not supposed to be added. It works out to $63 a barrel of subsidy. Today our cost of production is $42 a barrel. You add the $63 it is very difficult to make both ends meet. It is only because the rupee today is weak that we are making some profit. Otherwise, it is very, very difficult.

ONGC had taken major initiatives such as the Sagar Samriddhi programme. What was the outcome?

Sagar Samriddhi was not directly meant for increasing production. It was meant to be the biggest ever deep-water drilling campaign anywhere in the world.

We were supposed to drill 47 wells deep water. We have drilled about 100 wells and made big discoveries… more than 20. We have added 2.5 billion tonnes of reserves in the last 10 odd years. Unfortunately all those discoveries are fields which are small and scattered.

In deep water you need to have a critical mass to be able to produce. At given price of $4.2 a million btu it is not viable to produce this gas. We are in the process of doing the appraisal in a big field (KG-DWN-98/2) and also trying to sort of develop in a cluster approach. We have some nomination fields around these big fields. If all of them are put together in a basket and produced from one facility… that is what we are trying to do.

What are the challenges in deep water programme?

It takes seven to eight years for development. It is very time and cost-intensive as well. For three years we did not get any rigs and this was the time when oil prices went skywards. The government had to introduce a rig moratorium policy, and they said we can postpone our programme by three years.

Now we are in the process of doing that appraisal and once we have confirmation of the reserves, by 2013, we will make the field development plan. What we are [also] going to do is to monetise many marginal fields in the western and eastern offshore. Thirty nine such fields are under implementation for monetisation.

We have made 13-14 such schemes putting them in clusters and these cumulatively will give 110 million tonne of oil and gas over their lifetime. They are going to add to our target in 2013-14, for which we have just signed MoU. It is for 28.6 million tonnes although we will achieve 29.1 million tonnes. The production should be 2.5 million tonnes more than in 2012-13. It was 27.5 million tonnes last fiscal, but we will end around 26.2 or 26.3 million tonnes. That’s our plan in the short term.

In medium term, what we are saying is in the 11 Plan we produced 237 million tonnes of oil and gas. In the 12 Plan we will be producing about 277 million tonnes. In the long term we are talking about Perspective Plan 2030 for doubling our production. We will spend Rs.11 lakh crore on it.

What will be the key components of the Perspective plan?

We have historically grown at the rate of two per cent. We will have to grow at the rate of four per cent from now if we have to achieve [the plan proposals]. We have to get 60 million tonnes through ONGC Videsh Ltd.

All the systems of OVL will probably require review, revisit, recasting. Today, our system of scouting and scanning the opportunities is more of reactive than proactive. We will start scanning the opportunities on a periodic basis. That again we would be doing through some kind of expert agency. Unless we have a better way of scanning the opportunities we will not succeed.

Only way of taking it to 60 million tonnes, six times growth, is through large ticket collaborations. Unless we have big alliances and work together for big acquisitions it will not work. For that we have to make our business felt and for that systemic changes have to be done. We have to change our HR processes etc.

ONGC is seeing increasing retirements? How do you plan to manage?

Attrition is no issue. For the last three years, we have been hiring more than 1,000 engineers every year in comparison to 250-300 previously. But people who are retiring are those who have spent 35-37 years. If you want to replenish that by new recruitments, it does not work that way. Unfortunately, the workforce that gets inducted today is employable, but not immediately deployable.

There is a need to be trained. Large companies take two to three years to train, they even rotate them [new recruits] from one geo-political location to another. We don’t have that of kind of luxury of training people, so we just impart training in our campus… but expecting results from them immediately is just not possible. So we have to address all those things as we are going out of comfort zone.

Shale gas is making waves in the US. What are your plans?

Whatever has been possible in the US cannot be replicated just like that. US has got large tract of land. They have the infrastructure for evacuation of gas and for drilling of wells. More than 2,500 rigs are drilling in the U.S. They have more than five million km of pipelines. We have only 12,000 km of pipelines.

For shale gas you have a tie-up with ConocoPhillips. What do you want from the government?

Conoco Philips has agreed to provide us technological expertise. As regards the government, in Coal Bed Methane mining rights were given to two different companies. For shale gas, it is saying whosoever has the licence for conventional hydro carbon exploration will have for unconventional also. That makes lot of sense.

How are you going to manage Rs.11 lakh crore?

Our market cap is Rs.1.35 lakh crore. What is music to our ears is that the subsidy burden will reduce because of diesel price getting increased. It should not so happen that the government share reduces and our share remains the same.

Will ONGC look at retailing again?

We have 1,600 licences between MRPL and ONGC. If subsidy is eliminated and it is a level playing field then we also would also like to enter, why not.

(The correspondent was in Karaikal at the invitation of the company)


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