17 JUNE 2011
ONGC Plans to Spend $39 Billion to Raise Output
NEW DELHI -- Oil & Natural Gas Corp. plans to spend as much as 1.75 trillion rupees ($39 billion) in the five years starting April 2012, as India's flagship explorer seeks to lift output to meet surging demand for energy in Asia's third-largest economy.
The investment plan, which is preliminary and will likely be finalized in the July-September quarter, will mark a 40% increase from the company's spending program for the five-year through March 2012, Chairman A. K. Hazarika said in a recent interview.
Oil and gas companies globally are increasing their spending on exploration and production, encouraged by a pickup in demand and a bounce back in oil prices from the lows of the global financial crisis in 2008 and early 2009. Oil prices this year rose once again above $100 a barrel following unrest in the Arab world.
Energy companies globally will spend $529 billion on exploration and production in 2011, a record level that signals the return of the global drilling boom that sputtered during the recession, Barclays Capital said in a note earlier this month.
State-run ONGC holds the largest and most prospective acreage in India, including blocks in the prolific Krishna Godavari basin, off the east coast. The company accounted for 65% of India's crude oil and 44% of its natural gas output in the year ended March 31.
But output has been stagnant as the company's major fields have been operating for the past several decades and it hasn't been able to bring any new big field into production.
"The comfort zones have gone. Now, we need a lot of money for the oil exploration business because we are going for difficult areas in exploration," Mr. Hazarika said.
The investment will mainly be toward exploration and production, building new infrastructure and revamping installations, he said.
Mr. Hazarika said ONGC is likely to generate funds for the investment through internal accruals. "We are a debt-free company. We will be able to generate [funds] ourselves."
India's most profitable company posted a consolidated net profit of 224.56 billion rupees in the financial year ended March 31, up 16% from the previous year. Net profit could have been higher by 142.47 billion rupees but for the discounts that ONGC gave to state-run refiners on crude oil sales as part of the government's fuel subsidy plan.
Mr. Hazarika also said that ONGC--through its overseas investment arm ONGC Videsh Ltd., or OVL--is scouting for oil sand reserves in Canada, and oil and gas assets in countries such as Russia and Kazakhstan as part of efforts to reduce its dependence on the local business.
"OVL will partner with other state-run companies if we find a big opportunity," he said.
Earlier this month, two people familiar with the matter said that OVL and state-run GAIL (India) Ltd. are working on a plan to buy part of Exxon Mobil Corp.'s stake in Kazakhstan's Kashagan oil field. And last month, OVL Managing Director Joeman Thomas said that a consortium of OVL, GAIL and Petronet LNG Ltd. may bid for a stake in OAO Novatek's liquefied natural gas project in Russia.
OVL aims to double production of oil and oil-equivalent gas to 20 million tons by 2020.
"We are moving on track to achieve that," Mr. Hazarika said.
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