Should the govt sell oil producing fields?

 Nevin John   New Delhi     Last Updated: November 6, 2017  | 22:05 IST
Should the govt sell oil producing fields?

Selling 60 per cent stake in 11 oil and gas fields of state-run ONGC has some strong positives - it will bring in private investment and global majors to buy into India's energy story. Also the central government will be able to raise capital without impacting fiscal deficit targets. But ONGC's assets, which are perceived as 'national assets', will be going out of the PSU's control.

The shareholders are upset. "ONGC invested in developing the assets and made it producing with the consent of shareholders, its minority shareholders. The government takes an unilateral decision to give majority of the stakes to private firms," says an investor activist in Mumbai. The privatisation plan includes 15 fields -- 11 of ONGC and four of Oil India (OIL)-- with cumulative in place reserves of 791.2 million tonne (MT) of crude oil and 333.46 billion cubic metres (BCM) of gas, reports say.

The oil ministry believes that the entry of private firms will raise output. In the 'World's Biggest Public Energy Companies 2016' list of Forbes, ONGC is ranked 17 after the big Russian, American and Chinese hydrocarbon companies. ONGC was the most valuable company in the Indian stock market in last decade. Though the oil price is below half of its peak of $140 a barrel, the company is valued over Rs 2.5 lakh crore in the market. Also, the Indian government is selling the oil assets when Russian and Chinese government owned companies are in an acquisition spree.

Proving ONGC's technical competence, India's oldest and the largest producing offshore asset 'Bombay High' is a monumental example. ONGC pumps 1.07 million barrels of oil equivalent (includes oil and gas) a day, accounting for roughly 70 per cent of India's domestic crude oil production, Forbes noted last year. In the last fiscal, the company posted a gross revenue of Rs 77,908 crore (against Rs 77,742 in the previous year) and profit of Rs 17,900 crore (against Rs.16,140 crore). The dividend payout increase by 121 percent to Rs 7,764 crore (excluding dividend tax of Rs 1,581 crore).

It's not for the first time that ONGC has fallen to external pressure. It acquired 80 per cent stake in Gujarat State Petroleum Corp's KG basin gas block for Rs 7,738 crore in the last financial year. GSPC, with a debt of Rs 19,716.27 crore as on March 31, 2015, made 9 gas discoveries in the Bay of Bengal block. Of these, three -- KG-08, KG-17, KG-15 commonly known as Deendayal West (DDW) fields - have been approved for development. But GSPC's cost overrun and incurred a cost of $3.41 billion until March 2015. According to the field development plan (FDP), 12 more development wells are yet to be completed, which will further bump up the project cost, reports say. The trial production from the DDW field commenced in August 2014, but the average production achieved is only 19.45 million standard cubic feet per day (mmscfd) against a targeted commercial production of 200 mmscfd.

Also, the previous UPA government brought in ONGC and OIL for sharing the subsidy burden to offset revenue losses suffered by oil marketing companies --- Indian Oil, HPCL and BPCL --- by selling petroleum products below cost price.

The new 60 per cent sale has to be cleared by the cabinet. The assets for sale include Kalok, Ankleshwar, Gandhar and Santhal in Gujarat. These are big four oilfields of ONGC given to them on nomination basis and the current policy does not allow private firms taking equity stake in a nomination block.

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