Two years ago, Prime Minister Narendra Modi threw down a challenge to
the domestic petroleum industry when he set a target for them to attain:
reduce oil imports by 10 per cent by 2025. The Prime Minister cannot be
expected to go too much into the nitty- gritty of the issues involved.
The obvious question: Can industry respond with a credible solution?
Since then, almost everyone involved in the upstream industry has been
tossing a range of options to achieve what increasingly looks like an
impossible target without great success. A part of the problem is
compounded by the fact that the Indian hydrocarbon sector has failed to
come up with a new find that can in part mirror the oil gush from Bombay
High. Crude oil production in the country has stubbornly refused to
pick even though there have been a few discoveries in the
Kirishna-Godavari deep offshore basin by Oil and Natural Gas Corporation
and the Reliance Industries-BP consortium.
The government continues to look for that mythical whopper of an
oilfield -- and seems to believe that this can be achieved only if
foreign players are persuaded to join the hunt, either as partners of
domestic producers or by farming out some fields to them through
auctions.
The foreign companies are not overly enthusiastic about India because
they do not see any indications of substantial, commercially exploitable
recoverable reserves from either the new or existing fields. Most of
the fields with ONGC and Oil India are ageing and almost as old senior
citizens which means they have been juiced for years. Bombay High, the
largest and best known field whose reservoir was damaged long ago, has
limited years of productive life. It has been in operation for close to
half a century.
ONGC’s discoveries in the deep water KG-D5, which are being brought into
production in phases, are not large enough to accommodate the
aspirations of a foreign partner. ONGC had hired quite a few foreign
consultants and technical experts in developing this field as it is
venturing into deep waters for the first time. This is understandable.
ONGC should be admired for doing it without going in for a formal
partnership.
ONGC's decision to go it alone is admirable and amounts to an assertion
that it would prefer to rely on its in-house talent. Foreign investors
can be roped in to help boost production only if the domestic companies
lack the right technology. Neither ONGC nor Oil India is known to have
complicated oilfields. The rate of recovery may differ from field to
field and enhanced production techniques are so common in the upstream
industry that the very idea of seeking foreign partners amounts to an
insult of India’s upstream brains trust.
I started reporting on the oil industry during my days with The Economic
Times in the 1980s. I do not claim to have any deep knowledge of the
problems that domestic E&P companies face. But one thing is
absolutely clear: like Shakespeare’s King Lear, ONGC and Oil India are
"more sinned against than sinning".
The subject is vast and cannot be covered in one column. Any nuanced
debate will automatically have to cover a myriad aspects before we can
understand the contours of the problem fully. But I would like to look
at just one issue which I think has played havoc with the functioning of
the state-owned oil companies.
In its infancy, ONGC was fortunate enough to have an honest and wise
leadership. They were totally committed to the task that had been given
to them: hunt for oil. The political leadership of that time was also
geared to facilitate the achievement of that objective. K.D. Malviya,
the petroleum minister at that time, was bold enough to take quick and
drastic decisions. It was under such a leadership that ONGC discovered
quite a few oil and gas fields including Bombay High and South Bassein.
Malviya brought in Russian experts who generously helped ONGC. They
helped identify prospects at Bombay High and other fields in the western
region.
All these discoveries were from blocks that the government had granted
on a nomination basis. The problems really began when it decided to go
in for exploration acreage rounds on the basis of competitive bidding.
India does not have prolific hydrocarbon reserves and, therefore, oil
and gas discoveries are not possible without intense drilling. The
government launched the New Exploration Licensing Policy (NELP) in 1999
and held nine rounds since. No international oil major stepped forward
to bid. To avoid a political embarrassment and save these rounds from
collapse, the government forced ONGC and Oil India to bid and take the
blocks that received no bids.
This marks the beginning of a disastrous phase in the life of these
companies. Being PSUs, they could not resist. Equally, they could not
surrender these blocks without carrying out a minimum work program. As
feared, ONGC and Oil India drilled a spate of dry wells. As a result,
ONGC gained the unsavoury reputation of drilling the largest number of
dry holes among national oil companies.
The NELP ended in 2010 and, a few years later, the government switched
to the Open Acreage Licensing Policy (OALP) which is slightly better.
However, the prospectivity of sedimentary basins remains unchanged. No
foreign company turned up to bid in the OALP rounds either. We are back
to square one -- and the government cannot resist the temptation of
forcing ONGC and Oil India to bail it out and keep the OALP alive.
I have touched on only one factor responsible for the poor health of the
domestic E&P companies. I deliberately quoted King Lear as his
sentence eloquently sums up the plight of these companies. The style of
operation of the ministry of petroleum and natural gas has to change. If
that happens, things will automatically improve in the upstream sector.
The current petroleum minister, Hardeep Singh Puri, has a clean image
and a refreshing work ethic. Some of his predecessors have often fallen
to the allure of kickbacks in the petroleum sector, weakening their
connect with the oil companies. The ministry has got a very competent
secretary in Tarun Puri who is relatively new to the petroleum sector.
Puri should take a fresh look at the functioning of these PSUs without
being influenced by the perception of his predecessors. Prescriptions
should flow only after properly diagnosing the problem. Sadly, this has
not happened till date.
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