Changing of the guard at ONGC

Raj Kanwar, Contributing Editor

The transfer of power at the Oil and Natural Gas Corporation (ONGC) on Jan. 31 was a short and businesslike affair. The outgoing chairman and managing director (CMD), R. S. Sharma, retired simply by writing, “handed over charge in the afternoon to Mr. A. K. Hazarika” on a register after a four-year tenure. The subsequent farewell reception was like an open house at which everyone was free to express their views on acts of omission or commission. Several grievances were aired, and Sharma patiently offered explanations, justifications and even apologies. Praises and appreciation were also voiced. Hazarika described the growth trajectory during Sharma’s tenure as being astounding. “This is also the time when the world will be watching us, as the follow-on public offer has been announced,” Hazarika reminded the audience.

SHARMA: PRODUCTION CHALLENGE AS OPPORTUNITY

Though Sharma came from the profession of cost and works accountancy, he took a liking to the oil industry. Since joining ONGC in July 1988 as joint director of finance, Sharma made it a point to acquire experience in the complex nitty-gritty of the upstream industry. He embraced a three-pronged strategy to sustain production levels: a) expeditious development of discoveries, b) arresting decline from the mature fields, and c) augmenting production from overseas assets. In an exclusive interview with World Oil, Sharma looked back at his tenure of more than four years as the head of India’s most profitable company, with the second-highest market cap.

Retiring ONGC Chairman and Managing Director R. S. Sharma (left) accepts a flower bouquet from incoming CMD A. K. Hazarika.

World Oil: Did you find the twin tasks of developing new discoveries and enhancing recovery from existing fields exceptionally challenging?

R. S. Sharma: On the contrary, I took this challenge as an opportunity. As a majority of the producing fields throughout the world, including those of ONGC, have entered into a natural decline—and some of these global fields are declining at a rate as high as 9%—arresting this southward trend was a huge task indeed. At ONGC, this decline has been appreciably arrested and, in fact, has been reversed, albeit marginally, by a compound annual growth rate of just under 1 since 2000–2001.
Meanwhile, ONGC has made a number of new discoveries and, in the process, has accreted record reserves. In fact, this ultimate reserve accretion in 2009–2010 has been the highest in the last two decades. This is, however, an unending journey. We have to keep breaking our own records to meet the energy aspirations of our nation.

WO: How much total investment has ONGC made through ONGC Videsh Ltd. (OVL)? How much oil and gas equivalent has been produced from such properties?

Sharma: OVL, the 100% owned subsidiary and the growth vehicle of ONGC, has invested over $11.6 billion in acquiring 40 overseas properties in 15 countries. OVL has emerged as the second-highest oil and gas producer of India, only after its parent company ONGC, and has produced 8.87 million metric tons of oil equivalent (mtoe) in 2009–2010, the highest in its history, and its cumulative production up to 2009–2010 is 50 mtoe. The three most productive overseas assets in the last fiscal year were GNOPC, Sudan; Block 6.1, Vietnam; and Sakhalin-1, Russia.

WO: For the 21 new discoveries, comprising 11 new prospects and 10 new pool discoveries, during the last fiscal year, what are your field delineation and production plans?

Sharma: Each field and each discovery is unique, and there is no fixed set of rules for their delineation. That depends on varied factors ranging from geology, size of the discovery, the topography, etc.
Some of the onshore oil discoveries could be immediately put on production, while those in offshore and deepwater areas may take several years to develop and produce. A few isolated gas discoveries could remain untapped for a long time while waiting for market and buyers.
 
WO: Your total domestic oil production last fiscal year was 24.67 million metric tons, and natural gas production was 62 MMcmd. You now propose to raise oil production to 28 million metric tons by 2013–2014 and gas production to 72 MMcmd by 2012–2013 and 100 MMcmd by 2015–2016. Are these realistic targets? How much investment by way of additional infrastructure will you be making in order to reach these goals?

Sharma: The oil and gas production increase envisaged for 2013–2014 would be the result of a sustained and aggressive campaign to monetize our inventory of discoveries. These include 165 new and marginal fields. The envisaged growth would largely depend on the production stream of some of the substantial discoveries such as Cluster-7, WO series, B-193, D-1 additional, B-22, B-series, North Tapti and Daman.
To facilitate ramping up production, ONGC has increased its domestic plan investment for the Eleventh Five-Year Plan, 2007 to 2012, to $16.7 billion against $10.6 billion in the Tenth Plan, an increase of over 57%. Over 94% of this expenditure was incurred on E&P activities. Out of Eleventh Plan outlay, 2008 to 2013, $13.9 billion has already been invested in the first three years of the plan period.

WO: What are your plans for achieving energy security through renewable energy opportunities such as solar and wind energy, unconventionals like coalbed methane, etc.?

Sharma: ONGC has taken the initiative in alternative and clean energy sources. ONGC Energy Centre Trust is working on thermochemical generation of hydrogen, bio-coal conversion, solar power, solar thermal and uranium exploration. ONGC has already commissioned a 50-MW wind power plant in Gujarat state, and the power is being distributed to nearby ONGC installations. Plans for another 100-MW plant are underway. We are the first in the country to install three solar thermal engines at the Solar Energy Centre in Gurgaon, which started operating from Sept. 11, 2010.
We are also focusing on unconventional gases: coalbed methane (CBM), underground coal gasification (UCG), shale gas, gas hydrates, etc. We have already started producing CBM gas from a pilot project in Jharia, Jharkhand state, from January 2010. A pilot project in UCG at Vastan, Gujarat, has been launched. Similarly, a pilot project in shale gas has been launched in Damodar Valley.

WO: There seems to have been a slowdown in the rate of attrition in ONGC. How many new graduate engineers have been employed during the past five years to replace the retiring personnel?

Sharma: It is the dignity and the freedom in balancing work and life that ONGC provides, which scores over the high packages that the private companies offer. The attrition has been coming down from a high of 382 officers in 2006–2007 to only 57 in 2009–2010. In these five years, we have more than compensated by recruiting a total of 2,020 officers from reputed institutes and through a structured entrance process.

HAZARIKA: LOOKING FORWARD TO THE CHALLENGES
ONGC’s new CMD, A. K. Hazarika, knows the company’s workings like the palm of his hand. Therefore, he is not fazed by the enormity of the task that confronts him. In this exclusive interview with World Oil, Hazarika underscores the challenges that face ONGC and identifies his priorities.

World Oil: What are the key areas that you would like to focus on as you take the helm of ONGC?

A. K. Hazarika: I have been on the ONGC board for more than six years. Therefore, I have a great stake in and value the current strategies. To continue with that legacy, I shall remain focused on the core area of our activity: exploration and production.
The development of the offshore east coast and Daman will, of course, be our top priority. In regard to IOR/EOR, we have already completed 15 projects with an investment of $2.8 billion; six more projects are under implementation with an envisaged cost of $5.2 billion. These projects have already given us additional production of 56 mmt. Out of our 165 marginal fields, 50 have already been monetized and 48 are under monetization; the rest are either under development or at different stages of priority development.

WO: How do you view the company’s growth in the next two years?

Hazarika: Since we are in the process of a follow-on public offer (FPO), I am restrained from making forward-looking statements. But I can certainly say this much: that the momentum that has been generated by my predecessors and the growth path that has already been charted will be maintained. I’ll definitely add greater value appropriately as and when required.
Our reserve replacement ratio has been consistently more than 1 for the past five years. This is the greatest assurance for the sustainability and growth.

WO: What are the challenges you perceive moving forward?

Hazarika: The immediate biggest challenge for me is to manage the show with so few directors on the board. The workload and the responsibility of the CMD are enormous; it is thus challenging for the CMD to concurrently look after the important portfolios of director-onshore, director-exploration and director-HR, which vacancies are still to be filled. The other immediate challenge is the upcoming FPO. We are focused on this issue to make the FPO a big success. I hope the government will be able to realize maximum value from 5% disinvestment of its shareholding in ONGC.
Commercially, rising oil price vis-a-vis the subsidy-sharing mechanism issue remains another challenging area for us. Human resources is probably the greatest challenge not only for ONGC but for the entire oil and gas industry of the country. The present workforce has aged, and we are facing a great challenge in meeting the requirements of the field jobs. After the liberalization of this industry and subsequent entry of private players, the public sector has experienced a huge brain-drain, severely affecting the quality of manpower. The new generation has few attractions for this tougher profession of the oil and gas industry, resulting in a gap that is difficult to bridge easily very soon.  

SUDHIR VASUDEVA:  OUT-OF-THE-BOX ACHIEVER Sudhir Vasudeva is ONGC’s director for offshore and is also the director in charge of marketing and joint ventures. A gold medalist in chemical engineering with a management degree, Vasudeva joined ONGC in 1976, and was among the first generation of engineers involved in offshore operations in Bombay High. He was responsible for designing, installing and commissioning a number of process and unmanned platforms. He initiated the “war room” concept for continuous monitoring of flowing wells and timely intervention for production optimization. By exercising due diligence, Vasudeva has ensured that production from ONGC’s first deepwater project in the KG Basin will soon commence. As the director in charge of joint venture operations, Vasudeva successfully resolved many outstanding commercial issues with partners, including establishing a benchmark price for Panna, Mukta & Tapti (PMT) gas. His initiatives on the marketing side fetched the best available prices for ONGC gas and steered ONGC into the city gas and propane businesses. Vasudeva heads the Society of Petroleum Engineers (SPE) Mumbai section and is the chairman of the SPE Indian Council. He is also the first Indian member appointed to the SPE international board. In an exclusive interview with World Oil, Vasudeva explained ONGC’s redevelopment strategy to attain 40% recovery from mature oil fields in the western offshore sector with a total budget outlay of $40.1 billion. Discovered in 1974, Bombay High has been one of the most productive oil fields for ONGC. At this time, however, Bombay High and other fields in the west are suffering from production decline. Vasudeva said that a sum of $19.4 billion would be incurred on Bombay High South redevelopment phase II and another sum of $5.1 billion was being spent on redevelopment of Heera and South Heera Fields. He expressed confidence of incremental recovery by 2030 of 17.4 mmt of oil and 2.987 Bcm of gas from Mumbai High North, 18.3 mmt of oil and 2.7 Bcm of gas from Mumbai High South redevelopment phase II, and 10.7 mmt of oil and 2.3 Bcm of gas from Heera and South Heera redevelopment. Vasudeva further said that Bombay High redevelopment phase III was also being taken up on the basis of plans designed by Gaffney Cline & Associates. Vasudeva added that ONGC had made significant gas discoveries in deep water off the east coast in the G-1 and GS-15, G-4 and GS-29, Vashishtha, S-1 and KG-DWN-98/2 Blocks. Vasudeva said ONGC is proposing cluster/hub-based development to achieve production efficiencies. While first oil from the G-1 and  GS-15 blocks is expected by May 2011, the other discoveries are currently under appraisal.