Oil and Natural Gas Corp. Ltd (ONGC), the country’s largest oil and gas exploration firm, believes its days of stagnant production are over and that it will sustain a steady rate of growth in production going forward.

For fiscal 2015, ONGC produced a total of 22.263 million tonnes per annum (mtpa) of crude oil, up a mere 0.08% from last year’s 22.243 mtpa, primarily on the back of a 2 mtpa jump in production from its three western offshore fields.

In an interview on Saturday, T.K. Sengupta, director-offshore of ONGC, said the firm will continue to see an increase in production for the next three years, largely due to contributions from its western offshore fields. He added that production at the much-delayed and highly anticipated Krishna-Godavari (KG) basin block would start from fiscal 2019, helping to sustain the rise in production.

“We have posted a 14% rise in crude oil production in the current year from western offshore basin, and this growth rate will continue either through gas production or crude oil production from the western offshore," said Sengupta, while cautioning that this has to be supported by steady production from onshore fields.

ONGC’s oil and gas assets in India are spread across both onshore and offshore fields.

Onshore, the firm has fields in Gujarat, Rajasthan, Assam and Tripura, while its offshore assets are located mainly in the western offshore with four main fields—Mumbai High, Bassein and Satellites, Neelam and Heera fields, and the Panna-Mukta-Tapti joint venture.

Additionally, it has small producing fields in the eastern offshore as well. Its major eastern offshore field—KG-D5, or KG-DWN 98/2—is yet to start production.

Analysts say if the firm does manage to achieve an increase in output, it will augur well, promising additional revenue and profit at a time when ONGC is being battered by a 45% drop in the benchmark Brent crude oil price in the last fiscal—from $105.62 on 1 April 2014 to $58.61 on 1 April 2015.

Besides, there is a lack of clarity on the subsidy-sharing mechanism that potentially eats into all the benefits from an increase in production.

ONGC bears a part of the losses borne by oil marketing companies in India for selling sensitive petroleum products below market prices due to government control.

The government, on 18 October, freed the price of diesel, leaving only kerosene and liquefied petroleum gas (LPG) under controlled prices. However, since then, the government has not clarified what mechanism will be followed for bringing down the subsidy burden of ONGC and other state-owned oil and gas exploration and production companies.

“For ONGC/OIL (Oil India Ltd), the bottom line will depend on the quantum of subsidy share, where there remains no clarity. We assume that the GOI (government of India) will provide for the entire 4Q (fourth quarter) under-recoveries and assume a nil subsidy payout by upstream (ONGC and OIL). However, if GOI does not provide support, our 4Q estimates will have sharp downside risks," said a 9 April report by the Indian brokerage arm of Nomura Holdings Inc. of Japan.

In the last fiscal, ONGC saw a 2.5% fall in its share prices.

Analysts and consultants have always been critical of ONGC for failing to maintain a steady rate of growth in production, with the last 10 years seeing a steady decline in production from a high of 47.15 million tonnes of oil equivalent (mtoe, which includes both oil and natural gas production) in fiscal 2005.

In fiscal 2014, the company’s domestic oil and gas production was 45.03 mtoe—its lowest in a decade.

“We had a target to increase the production this year by around 1-1.5 mtpa, and we have achieved it," said Sengupta.

He added that while the current rate of growth came only from crude oil production (from its B193, cluster 7 and D1 fields), the company will see an increase in its natural gas production as well in the next two years.

This will come from ONGC’s Daman offshore field in the western offshore, with an initial production of 2.4 million metric standard cu. m per day (mmscmd), said Sengupta.

For fiscal 2015, ONGC’s natural gas production fell to 22 billion cu. m (bcm), or 60 mmscmd, from 23.284 bcm, or 63.8 mmscmd, in fiscal 2014.

However, ONGC also saw an increase in natural gas prices from $4.2 per million metric British thermal units (mmBtu) to $5.6 per mmBtu from 1 November, and approved a string of investments to ensure its growth rate is maintained, despite a fall in crude oil prices.

In an interview on 13 April with Bloomberg, D.K. Sarraf, chairman of ONGC, said that the company has approved $4 billion ( ₹ 24,000 crore) of investment in five projects in the last fiscal to yield 16 mt of oil and 58 bcm of gas over the project life from several of its fields.

Sarraf added that the company will also be investing $6 billion ( ₹ 36,000 crore) to develop its KG basin asset.

Meanwhile, Sengupta said that the first oil will come out from the basin in 2018-19 and natural gas production will start from 2019-20.

Dhaval Joshi, an analyst with brokerage Emkay Global Financial Services Ltd, said if the company is able to maintain a 10% growth rate in production, year-on-year, it will be a “big positive for the company on operational parameters".

“If the subsidy-sharing mechanism is clarified by the government, then the increase in the rate of production and the higher gas prices will be helpful in offsetting the impact of falling crude prices, leading to higher profitability," he added.

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