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ONGC rejects CAG observations
March, 04th 2008
Flagship explorer Oil and Natural Gas Corporation has drilled several holes in CAGs recent observations, first reported by TOI, that ONGC was "frittering away huge sums in unfruitful expenditure" stemming from poor planning, lack of foresight and co-ordination in decision-making and penalties arising from failure to drill the number of wells promised to the government because it did not properly monitor progress of work.

In a letter to the oil ministry, ONGC has said exploration is a high-risk business where "inputs are deterministic and the outputs are probabilistic". Deepwater exploration is riskier and more capital-intensive with high uncertainty on core gains. Despite this, "in 2003 ONGC forayed into the uncharted territory and was also successful in making significant discoveries...The fact that ONGC drilled 41 deepwater locations against the approved 10th Plan target of 37 wells during the said period is an attestation of its efficiency."

On surrender of blocks, it said after drilling four wells in NELP-II acreages in western offshore, the firm felt the prospectivity of the tested geographical structures was poor and the prospects identified in the other western offshore acreages that remained to be drilled were also similar in nature. "ONGC took technically sound and economically beneficial decision of relinquishing the five blocks of western offshore with attendant penalties (Rs 124 crore as stated by CAG) for the unfulfilled work programme. To continue under these circumstances would the decisions to indefensible risk and financial loss."

On deepwater wells, it said at the beginning of the 10th Plan, ONGC had 10 nomination and 9 NELP acreages with a cumulative programme of 19 wells under NELP and 11 wells under nomination. Hence, planning of 37 wells cant be considered as inadequate. The perceived inadequacy is with a presumption that ONGC would continue to fulfill its commitments of subsequent phase II and phase III commitments in case of discoveries. Since during the first six months, there were no major discoveries the option of hiring, the additional rigs was not exercised.

ONGC also said that prioritisation of the prospects to be drilled in any given acreage is based on play perception and it is in this alone which decides the drilling programme. Besides, with the shift of focus to east coast, new discoveries resulted leading to new play fairways and generated new prospects. Thus, a need was felt for accelerating the tempo of exploration. A dialogue was initiated with the existing contractors to continue operation beyond the contract period.

ONGC said it also needed to emphasize that with the day rates quoted (122.64% higher on ongoing contract rig operating day rate and 89.62% higher on ongoing contract effective daily rate), diligence was called for in view of the hike with respect to ongoing rates.

It said it was unfortunate that the contractor refused to extend validity of offer besides the issue of pre-commitment, rig availability and an extraneous requirement led to the rig contract not being followed up. Diversion of deep water rig to shallow waters didnt occur and it was only the locations in the nomination acreages varied in bathymetry between 150 m and 400 m.
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