Don’t kill the Goose that lays the golden eggs—ONGC and OIL

By Dipanjon Konwar

This news is already circulating in the corporate grapevine and selected media that now the Ministry of Petroleum and Natural Gas (MoPNG) is considering divesting 15 oil and gas fields discovered, developed and operated by public sector Maharatna company Oil & Natural Gas Corporation Ltd. (ONGC) and Navaratna company Oil India Ltd. (OIL) to private companies, arguing it would induct “world-class technology and oilfield management practices” needed to raise domestic production, “encourage investment, help in skill development and generate employment.”

Last December, ONGC had signed initial agreements with Oilfield services providers — Schlumberger and Halliburton for enhancement of production from its matured fields of Geleki in Assam and Kalol in Gujarat, respectively. These agreements were later cancelled after suggestions that they were legally vulnerable, forcing ONGC to devise a competitive bidding model. Under the proposed bidding model, the service provider will get fee for every incremental unit of oil or gas produced as well as for maintaining ‘baseline’ production at the field.

Now, we hear that 15 functional oil and gas fields will be divested which together have combined reserves of 791 million tonne of oil and 333.46 billion cubic meters of gas. ONGC will lose control of 11 prized oil and gas producing fields including Kalol, Ankleshwar, Gandhar and Santhal oilfields in Gujarat. In Assam the OIL will lose the cream of its oil and gas producing asset in Moran, Greater Dikom (which includes Dikon, Madarkhat, Hatiali, Kuhiarbari, Sealkati), Greater Chandmari (which includes Barekuri, South Chandmari, Baghjan) and the Eastern Satellite fields, which includes Jagun, Toklong, Kherem, Duarmara, Pengri, Kusijan Bogapani, Hukanguri, Talap, Jengoni, Kasomari, Shongking, Jairampur, Namchik and Mechaki.

The policy being envisaged offers 60% stake with operational control in these fields for 20 years, or the field’s remaining life. The mining lease will also be transferred to the private company chosen through bidding process. Companies offering the highest investment within 10 years of the award and revenue share will win the fields. The MoPNG is expected to approach the Union Cabinet to allow private companies take 60% stake in these producing oil and gas fields of ONGC and OIL, with the view that they would raise production above the baseline estimate.

These fields known as ‘nomination fields’ are the prime asset owned by ONGC and OIL, and they account for 69% of domestic crude and 75% of gas production. The move has been prompted by the view that the Central Public Sector Enterprises have failed to pump up volumes from these fields to desired levels and private companies should be given a chance. All of these oil fields are in blocks or areas that were given to the national oil companies on ‘nomination’ basis and the current policy does not allow private firms taking equity stake in a ‘nomination’ block. So, a change in policy is required for which the MoPNG is approaching the Cabinet. The current policy allows giving out of participating interest or a stake to a private company only in the blocks or areas awarded in open auctions under New Exploration Licensing Policy (NELP) since 1999.

There is murmur of resentment among the employees of both ONGC and OIL. Many question the capability of the private companies. The failure to achieve targets by Reliance Industries in Krishna-Godavari basin KG-D6 where production is down to 10% of the promised figure and Cairn India production which fell 4% in 2015-16. People are resentful that the Vedanta group’s Anil Agarwal is lobbying for “privatisation” of ONGC and other public sector enterprises for competition. Last month top global and domestic oil bosses promoted this idea with the PM in a brain storming session. In 1992-93, about 28 of ONGC’s discoveries were privatised using the same logic. In that infamous round, discovered fields like Panna, Mukta and Tapti oil and gas fields in the western offshore was given to now defunct Enron Corp. of the US and Reliance Industries Ltd (RIL). The ONGC was made licensee and given an option to farm in the balance 40% of stake. The controversial privatization later resulted in an inquiry by the CBI.

So, this new privatisation drive is an unwelcome move. Coming when ONGC is poised for a big leap in oil and gas production with projects to raise crude oil production by 4 million tonne (MT) from 22.6 MT in 2017-18 to 26.42 MT in 2021-22, and double natural gas output from current 60 million standard cubic meters per day to 110 MMSCM per day by 2020 to meet PM Modi’s target of cutting India’s import dependence by 10 per cent.

With its field-headquarter located at Duliajan, OIL too is presently working on expanding its operational base through balanced growth portfolio of exploration acreages, both in India and abroad, and producing from the discovered oil & gas fields. At present OIL has three Petroleum Exploration Licence (PEL) covering area of about 331.75 granted on ‘nomination’ basis within the country. These nomination blocks are in the state of Assam, Arunachal Pradesh and Rajasthan. It also has 22(Twenty two) Petroleum Mining Lease (PML) covering an area of about 5004 Process has been initiated for part PML extension.

During 2016-17, crude oil production of OIL was 3.277 MMT which was almost 0.92% higher than previous year’s production of 3.247 MMT. It achieved 93.63% of MoU Excellent range of 3.50 MMT. The natural gas production was 2937 MMSCM in FY17 (2705 MMSCM from Assam & AP + 232 MMSCM from Rajasthan) against 2838 MMSCM in FY16 which is higher by about 3.48%. The sale of natural gas was 2412 MMSCM against 2314 MMSCM in FY16. This is the highest ever production and sale of natural gas in the history of OIL. In FY’17, OIL has earned total revenue of Rs.11,191.07 crore as against Rs. 11,158.63 crore in FY16.

Hence, this proposed move by Government of India to privatize these ‘nomination fields’, has comes as a shocking surprise and dampener for the employees and all stakeholders. It is well known fact that the private operators after this backdoor entry and ownership of the discovered oil and gas field will use all technology available without any qualms about environmental impacts and social justice to squeeze till the last bit of the oil and gas to meet the ‘baseline’ production target and make profit on the extra production. The citizens of Assam wonder how the privatization of these OIL wells will “help in skill development and generate employment”. There is worry that tens of thousands of jobs will be lost in Assam with the private operators opting for high technology and automation, cancelling contracts of the contractual workers, local contractors, suppliers and transport operators. It is hoped that the government succumbing to greed of production targets would not hasten to kill the goose that lays golden eggs.

Dipanjon Konwar is Faculty (OB & HRM), Dept. Of Business Administration, Gauhati University

(This is an opinion piece and the views expressed above are the author’s own. TIME8 neither endorses nor is responsible for the same.)