Dinesh Kumar Sarraf, chairman of the $33-billion energy major ONGC, will retire in the next couple of months. In this interview, he talks about his stint at the helm of ONGC. Edited excerpts:
How satisfied are you with your term as the chairman of ONGC that comes to an end in August?
I am very satisfied. A lot of things were done in the last 3 years or so. I kick-started a majority of incomplete and stranded projects. Also, significant discoveries were made during my term. The development plan for cluster 2 of KG block 98/2 at a cost of $5 billion is quite significant. That field alone will produce 27% of ONGC’s gas and 17% of crude oil. Such developments don’t come every year. We have made up our mind to go for the development of cluster 3 in some time. Believe me, this is going to be much bigger. We expedited production and kept the development cost under control. The production of oil and gas were falling each year, and we arrested the fall in oil and gas production. And now, the production is rising. I kick-started more than ₹1 lakh crore of stranded projects during my term.
What were the major challenges faced by you?
Market conditions are a major challenge. The crude oil was trading at $120 per barrel when I took over as chairman, and within a year, it fell below $50 a barrel. Further, the prices touched its low of $28 a barrel in January 2016. When crude oil prices are $28 a barrel, how do you take a capex (capital expenditure) decision of $5 billion? It is not a matter of joke. What we are spending is public money, and we have to generate returns for the stakeholders. This was the biggest challenge. Despite all these challenges, we took the investment decision in most adverse time.
Does it make commercial sense to invest $5 billion when oil and gas prices are so low?
Yes. I believe this is the right time because prices of oil field services are low, new contractors are available and best of the technologies are available. All these have helped. The challenge is that the contractors are failing. This means that while there is a silver line, there is black line too. We need to evolve a strategy to deal with this.
Why are the contractors failing? What strategy are you talking about?
Some of the business partners in project execution have failed and left us mid-way. The financial position of one of the contractors became bad and they went into liquidation. They were handling three major projects, including the Daman project. This forced us to think how to evaluate the business partners and keep an eye on the financial status of our business partners.
Any regrets about things you wanted to do but couldn’t do within your term?
I wanted to do the cluster 3 development within my tenure. Significant work has been done on that front, and I will ensure that there is no looking back. ONGC is a vibrant organisation. Many things are happening at any given point of time.
Many past chairmen also wanted to complete cluster 3 during their term.
Many people tried. Cluster approach for development of discoveries started seven years back. I have the satisfaction that cluster 2 has been done. And, cluster 1 field development plan (FDP) will be made for whatever gas is remaining as it is in dispute for migration of gas to Reliance since 2013.
How do you justify the acquisition of KG basin block of GSPC for $1.2 billion? The acquisition of Imperial Energy by ONGC for similar value was questioned and the company had to write down the value of its investments.
The GSPC deal is a game-changer, and it would bring much expertise to ONGC especially in HP-HT (High Pressure-HighTemperature) production that ONGC was not able to do so. We will pay them $1.2 billion - $1 billion for the Deendayal block and remaining $200 million for other discoveries. $1.2 billion is just a fraction of the cost that they incurred to develop the block, infrastructure and platform. We will use this platform for Deendayal as well as KG basin and other discoveries nearby. We will integrate the development to produce from other fields as well. Some of the gas from our cluster 2 can be produced from GSPC’s platform. So, it can be also used as back up. All this benefits will accrue in due course.
If GSPC can’t develop the block after $2 billion of investments, how can ONGC?
We have to do it the right way. They have lots of experience on HP-HT discoveries, and it will come to ONGC. All the decision were taken by the ONGC board and committee after deliberations of 8-9 hours.
We have bought it at quite a reasonable price as we have paid them less then the cost of facilities that they have created. Not just money, but you have to look at it from time value of money concept.
Going by your time value of money concept, similar investments in Russian fields have given you profitability of Rs 700 crore. GSPC investment will, however, take 10 years to give results.
Each investment is of different nature. If I invest in exploration, it will give me return in 10 years but if I invest in producing field, it will start giving returns from next month itself.
Are you looking at monetizing the downstream assets as they near completion?
We had initiated many joint ventures such as Opal, OTPL, Dahez SEZ, Mangalore SEZ and Mangalore-Bangalore pipeline. All these projects were completed in 2016-17. Monetisation has already started in some of the projects. OTPL has given a dividend of 7.5%, and it is the first stand-alone gas based power plant in India to give dividend. We are looking at all options, and what is required to be done will be done in today’s context.
Is ONGC making profits in selling gas at $2.48 per mmBtu? The price of gas used to be $2.5 per mmBtu 10 years ago.
There is no point in finding about the losses. What is required to be done is to find a solution and implement the solution. If you talk of crude oil, the price of crude oil today used to be the same 10 years back also. These are all cyclical, and the biggest challenge of oil industry. If oil firms can’t withstand this, they will not exist. Having said that, crude oil prices are deregulated, and we float or sink with market.
Gas prices are artificially fixed. We have been requesting the government to remove the benchmark and allow the prices to be fixed by demand and supply. But the government has its own concern for city gas distribution, power and fertilizer consumers.
What is the update on the mega merger of PSU oil firms to create a oil behemoth? What role is ONGC playing?
I would not like to speak much as this is a price-sensitive issue. Whatever role we can play, we have informed that role to the government. The government had asked us to give our views and we have given ours. Now it is up to the government to decide what is to be done.
