In Search of Elephants

Sudhir Vasudeva
Chairman & Managing Director, ONGC
Sudhir Vasudeva, Chairman & Managing Director, ONGC, discusses the need to prioritise the actions for India to ensure energy security. He explains the necessity of technology intensive applications in known as well as frontier basins and emphasises on the need of appropriate infrastructure, non-conventional sources and securing LNG supplies. In an exclusive interview with Mittravinda Ranjan, he says, "There is nothing more economical than exploiting a big discovery."

Indian Government has earmarked close to Rs 2.8 trillion for the development of hydrocarbon sector. Which fields in your opinion must be on the priority list of the government?
Hydrocarbon sector outlay for the 11th five year plan is 2.13 trillion. This consists of 1.51 trillion for exploration and production, and 0.62 trillion for the refining and marketing sectors. Similarly, hydrocarbon sector outlay for the 12th five year plan is about 4.52 trillion. This consists of 2.98 trillion for exploration and production, and 1.54 trillion for refining and marketing sector. India is one of the largest growing economies in the world and as we grow, our energy needs are going to be enormous. At present, we are the 4th largest primary energy consumer and it is expected that in few years, we may emerge as the 3rd largest primary energy consumer. Keeping it in view, it becomes imperative for our country to prioritise its actions for the energy security of the nation. Ranging from exploration, production, refining, marketing including infrastructure - the entire gamut of oil and gas industry needs a huge investment as energy, especially oil & gas are closely linked to the growth of our economy.
The first action and major resources would be application of state-of-the art technology in known as well as frontier basins. The recent hydrocarbon successes in India affirm the view that point out that Deep and Ultra-deep water provinces will emerge as the major hydrocarbon plays. We need to focus on our unexplored basins like - Andaman Nicobar, Kerala-Konkan, and of course, the East coast and Mahanadi basin. Besides exploratory inputs, we will have to invest in matured fields for improving recovery factor and maintain production levels. We will also have to create oil and gas infrastructure like - pipelines, refineries, gas infrastructure, etc. At the same time, while we need to focus on non-conventional sources, we also need to strengthen LNG supply sources.

Unlike other countries which have strategic reserves anywhere between 45-100 days, current storage capacity of India is around 30 days. How critical is this issue for a country of our size?
Current storage capacity is primarily the result of storage capacity at various refineries and crude oil supplying locations required for maintaining operational continuity in case of short term supply disruption. In that sense, we did not have any strategic storage. Definitely this was a concern. The government has taken in principle decision to construct 15 million tonnes of strategic storage in various phases and has created Indian Strategic Petroleum Reserves Limited (ISPRL). ISPRL, in the first phase, is in the process of setting up such strategic crude oil storages which includes 1.33 million tonne at Vishakhapatnam, 1.5 million tonnes at Mangalore and 2.5 million tonnes at Padur, a site near Mangalore, which total to 5.33 million tonnes. This storage will be over and above the existing storage capacity for crude oil and petroleum products at the various refineries and would act as emergency response in case of short-term supply disruption. The project is anticipated to be completed during the 11th Five Year Plan. This will help in mitigating the risks to some extent, but we need to build further strategic storage capacity.

What are your views on the risks, which Exploration & Production (E& P) companies as well as service providers continue to face in India and what threats do they pose in the path of India's energy security?
Characterised by its inherent uncertainties, globally the E & P business is always risky. Though the input is deterministic in this game, its output is somewhat probabilistic. The global success ratio in exploration is around 1 :2.5. That means on an average one needs to drill about five wells to find hydrocarbon in two of them. In India we are also at par with this ratio. Irrespective of this ratio, the other fact is that the era of so called 'easy oil' is almost over. Exploration activity is increasingly shifting to deep and ultra-deepwaters which are not only cost intensive but technologically challenging as well.
Similarly, maintaining production levels from the matured field is once again cost and technology intensive. Most of the fields in India were put on production around 35-50 years back and it is difficult to expect same production levels as it were during their prime time. Besides the biggest uncertainty of striking hydrocarbons, spillage, rupture, blow-out of wells, earthquakes, tsunamis, terrorist activities, etc are some of the inherent risks associated with this industry. Though appropriate measures are taken right from the design stage to mitigate these risks, however, probability of emergency cannot be eliminated. In the event of any such unfortunate events, the risk of significant liabilities always exists.
E & P companies are venturing into the areas of unconventional hydrocarbons but there are several environmental and social issues that also need to be addressed. Land acquisition for exploration and development projects, particularly for new sources of energy like Coal Bed Methane(CBM), Underground Coal Gasification(UCG), Shale gas, etc remain areas of major concern. In this context, the most significant 'outside' risk factor is the volatility and unpredictability of oil prices. Under the given circumstances of volatile geo-political situation, the risk of supply disruption, particularly from the oil-rich middle-east countries and subsequent risk of price-spike leading to higher service cost as well as higher subsidy burden for the growing economy like India are equally great risk factors for this industry.

May we have your comments on the available opportunities reach that is available in the Indian hydrocarbon space from the perspective of operator? How best has ONGC utilised these in the past year?
ONGC is a unique E & P company which possesses the resources and skill for the entire value chain of the business. Starting from seismic data acquisition, processing, interpretation through exploratory and development drilling to production, processing and marketing, we have more than fifty percent independent operational adequacy. We do charter-hire services to meet our planned work programs. However, the reasonable degree of self -sufficiency in E & P infrastructure helps us being cost-competitive compared to our competitors.
Our strong ethical business practices, transparent accounting practices and quality consciousness in every step of operation has helped us maintain customer confidence. These qualities have also helped us to win over our competitors in overseas market. We have successfully established our image in overseas as a 'Partner in Progress', not mere as an entity with sheer interest in balance sheet. Credibility of the democratic system of our country also goes a long way in building up our credibility. Being a National Oil Company, this augurs well for our business.

In the current scenario, is it more viable to improve recoveries from the aging fields than developing the new and marginal fields?
Keeping the energy needs of the country in view, there is no other option but to have a balanced portfolio. In my opinion, it is always better to 'go for gold', that means if you have a big discovery go for exploiting it. Nothing is more economical than that. That is why we are investing maximum resources in search of 'elephants'. At the same time with the current oil prices and advances in new technologies, improving recovery factor and developing new and marginal fields, both are rewarding.
Our vintage fields which range between 35-50 years continue to contribute almost 70 percent of our current production. Though it is very difficult to achieve the production levels that were during the prime time, through our concerted efforts, the decline is of the order of 1-2 percent which is fairly low as compared to global average of the 6-7 percent, as indicated by various global research agencies.
ONGC has implemented 21 IOR/EOR schemes in a bid to enhance and improve recoveries from the aging oil fields. We have committed investments to the tune of Rs 48,000 Crores, which will add 150 million tonnes to our annual production.
We have already utilised Rs 33,000 Crores, and 68 million tonnes has already been produced. Schemes worth Rs 15,000 Crores are already there in the pipeline, which will be implemented in phased manner to raise the output by 2015.
Under the present circumstances, until the 'elephants' are not being discovered, we have to focus on the assets that we have already discovered. Be it brown fields or erstwhile economically marginal fields. The high oil prices have made the marginal fields objects to be revisited. We are revisiting and reaping profit out of them.

What is the estimated potential for shale gas from the well spud in Durgapur and how do you plan to go about monetising this asset? Tell us about the plans to test the potential of shale gas availability in the fields of Cambay, Krishna Godavari (KG), Cauvery and Assam-Arakan?
We have drilled four wells for shale gas exploration. These wells were purely R & D effort to understand shale gas plays in the country. We could establish shale gas presence; however, we are yet to establish its prospectivity. Cambay, KG, Cauvery and Assam-Arakan basins may emerge as future shale gas plays. However, our shale gas exploration programme will depend on the shale gas policy of the Government of India, which is expected to be firmed up next year.

How do you plan to address the environmental challenges associated with the shale gas production?
With the present technology, this is an area of concern, particularly for India where land and water resources are under pressure. For example, hydro -fracturing technique used to produce shale gas is a high pressure activity which results in increased seismic activity. Shale gas production process requires huge amount of water mixed with chemicals which pose a threat to the environment especially groundwater sources. Huge land requirement for operation as well as for treating and disposing off the large amount of produced water is a challenging issue under the given socio-economic condition of the country.
Additionally, shale gas extraction involves huge carbon emission which is an environmental issue. During commercial exploitation of Shale gas, we ought to address all these issues. I believe that the proposed shale gas policy would also address these issues in detail.

How does the company plan to develop the new hydrocarbon assets along the East coast and plans to develop the pre NELP blocks as clusters? How would this help ONGC to firm the reserves?
We have got quite a few new finds in KG basin; VA-1 and VA-2 in Vashishta field; D-1, A-1, E-1, U-1 and W-1 in KG-DWN-98/2 Block, etc. At present, we are intensely working on the project economics, and have decided to go for the integrated development of G1 and GS-15, Vashishta and S-1 fields. GS-15 has already commenced production on 31st Aug 2011, and G-1 is likely to be on stream in first quarter of FY 13. Vashishta and S-1 fields may be on stream by mid-2012. The southern discovery area is at about 2841 mts of water depth. We are yet to assess the potential of this well to decide whether it can be monetised at the current gas prices.
Based on the approval of Directorate General of Hydrocarbons (DGH), we will work out development plans for various other discoveries. Definitely, dealing with fields located in deepwater and ultra-deepwater is going to be challenging. However, we remain open to the technology choices that will enable us to develop these fields in the most effective and timely manner. We are exploring for partners who would be having the requisite expertise & technology required for deepwater developments.

Tell us about ONGC's plans regarding the refineries.
We are currently working on the third phase of expansion of Mangalore Refineries & Petrochemicals Ltd (MRPL) which is progressing very well. MRPL was into bad debts with no working capital and declared BIFR (Board for Industrial and Financial Reconstruction) before ONGC acquired the refinery .
We initially provided loans and modified the credit strucutre to completely turn around the business into successful venture. Last year we carried out some debottlenecking and raised the nameplate capacity from 9.68 million tonne per annum (mmtpa) to 11.8 mmtpa and plan to further raise the capacity to 12.8 mmtpa by this year. We are also executing the phase-III expansion to enhance production to 15mmtpa with greater crude handling flexibility.

Tell us about the petrochemical project ONGC plans to set up in Mangalore.
ONGC and MRPL are the lead promoters of ONGC Mangalore Petrochemicals Ltd (OMPL) with 49 percent equity. Like ONGC Petro-additions Ltd (OPaL), the mega-petrochemical project upcoming at Dahej, OMPL is also a value -multiplier project. Since MRPL's products will be feedstock for the petrochemicals plant, this project is also going to provide ONGC much desired integrated growth.

As the Chairman of the largest hydrocarbon company of India, how do you plan to steer the growth in the years to come?
My objective is just not the successful completion of my tenure as the CMD of this company. Instead, I want to lay down a clear roadmap for the company for the next 15-20 years. From the very first day of my assignment, I have started working on a Perspective Plan to identify the growth areas for this energy behemoth in the coming years as well as to chart out the detail as how to move ahead to realise that growth.