INDIA CEO SERIES: ONGC bets on domestic upstream push, eyes overseas producing assets

The S&P Global Commodity Insights India CEO Series is a compilation of exclusive interviews by Asia Energy Editor Sambit Mohanty with top government and industry leaders in India's oil and gas sector. Get insights on how those companies are planning to strike a balance between traditional and new businesses at a time when energy transition is changing the industry's landscape, while geopolitical turbulence is throwing up new challenges.

India's ONGC Ltd is actively pursuing a multi-pronged growth strategy that will involve vast expansion of exploration acreage at home, acquiring producing assets overseas, as well as building new crude-to-chemicals projects, its chairman and CEO Arun Kumar Singh said.

In an exclusive interview with S&P Global Commodity Insights, the head of the state-run upstream producer said he strongly believes that sustained growth in demand for both transport fuels and petrochemicals would continue in India for a couple of decades despite energy transition starting to take away share of fossil fuels in many countries.

"ONGC's aim is to play a key role in helping India reduce its dependence on oil and gas imports. The aspiration of the government is a 10% reduction in oil imports," Singh said. "We are hopeful that ONGC's output strategy can take the country one step closer to that goal."

In the latest round, the government released 1 million sq km of 'No-Go' area for exploration.

"We plan to undertake drilling and exploration in about 500,000 sq km area in the next 4-5 years. A lack of major discovery in India in recent years has been one of the concerns. Hopefully, the new and rejuvenated exploration activity will help us to address some of those concerns," he added.

"We have already started drilling in the Mahanadi Basin and will start drilling from October-November onwards in Cauvery offshore. Next year, we will be drilling in the Andamans," Singh said.

ONGC contributes around 74% of India's crude oil and around 63% of its natural gas production. The company is deepening its technical and operational expertise in deepwater E&P and is increasingly assessing the prospect of high pressure-high temperature and ultra-deepwater plays in India.

Upstream investment climate

ONGC is also actively pursuing discussions with oil majors seeking partnerships to accelerate domestic exploration plans. It stepped up discussions with ExxonMobil, Chevron, TotalEnergies and French research organization Institut Français du Pétrole on various issues like technology and deepwater collaboration.

ONGC aims to achieve 2.2 million boe/d of hydrocarbon output by 2040 -- approximately 1.4 million boe/d of domestic production and 800,000 boe/d of production from international operations. Domestic oil and gas output in fiscal year 2022-23 (April-March) was more than 800,000 boe/d, while its output from overseas operations was 195,000 boe/d.

According to Singh, the government's recent policy reforms as well as current global prices made upstream activity attractive.

"For oil, we are comfortable with any price above $60/b and happy with a price of above $70/b for oil and $6.50/MMBtu for gas," Singh said.

According to S&P Global Commodity Insights, domestically, in 2015–2019, more than 50% of total capital expenditures was directed to exploration drilling and project development. From 2018, capex growth was driven by a rise in spending of projects, reflecting the start of development of KG-DWN-98/2 deepwater project in the east coast.

Since 2018, ONGC's investment focus has been on the development of KG-DWN-98/2 and maintaining production from major fields such as Mumbai High, Neelam Heera and from Bassein and Satellite assets. In addition, the company is investing in EOR/IOR techniques to enhance production from mature fields.

"Upstream spending is growing again after peaking in 2019," according to S&P Global.

India announced sweeping policy reforms for its upstream sector in recent years. The oil ministry said last year that India would allow operators to sell locally produced crude in the domestic market without restrictions. Under the previous policy, the operator of a field could not directly sell locally produced crude into the market and needed government permission for any sale of crude and condensate within the country.

The government also moved away from a cost-sharing to a revenue-sharing mechanism, which analysts said helped to expedite approvals.

"I can say that our fiscal regime is one of the best in the world for new acreages," Singh said. "Of course, we have some issues to deal with from older fiscal regimes. What more can be done -- I think oil majors are in touch with the government and they are looking for more assurances."

Overseas ambitions

The company's wholly-owned subsidiary and overseas arm, ONGC Videsh Ltd, owns participating interests in 32 oil and gas assets across 15 countries. Combined output from its overseas assets is currently around 10.5 million mt of oil equivalent.

"We are keen to take that number to 20 million mt of oil equivalent," Singh said. "Now, we are more focused on acquiring producing assets. We are looking at the Middle East and Central Asia as some of the potential regions."

He added that the company's assets in Russia were producing as per normal.

"Currently, production at the Russian assets is not a problem but the price realization is a problem because of the EU price cap. We consider Russian assets as great assets in the long-run," Singh said.

He said that ONGC was looking to set up two crude-to-chemicals projects in the country -- one in the northern region and another in the south. It is currently looking for partners.

"If there is one sweet spot for oil now in the world, that is India. India's oil demand is insatiable and this demand will continue for the next 20-25 years despite EVs and energy transition," Singh said.

He added that assuming the economy grows annually at a rate of 6%-7% in the coming years, annual primary energy growth will be about 4%-5%, while new energy would take the remaining 1%-2% share.

"When economic growth happens the first thing that grows is mobility and therefore the future for transportation fuels look bright in the country," Singh said.

ONGC aims to become a net-zero firm by 2038. The company is looking to expand its renewables capacity to 5 GW by 2025 and 10 GW by 2030 from the total current installed capacity of 190 MW, he added.

More from the series:

Cairn says imperative to tap foreign, private firms to realize upstream dream

Essar says for upstream investments to flow, it's now or never

Oil India sees time ripe for upstream sector to bask in glow of high oil prices

IOC's refining expansion landscape will reflect a shade of green

India's crude strategy a cushion for both global, domestic prices, says Puri