ONGC eyes 15% cost reduction to address lower oil price regime

Oil and Natural Gas Company (ONGC) is seeking to reduce 15% costs organisation-wide via varied optimisation measures, Director for Production Pankaj Kumar told reporters in New Delhi. Mr. Kumar enumerated primary areas of focus would entail addressing logistical costs alongside enhancing efficiency and project execution. The state-owned explorer expects oil prices to remain between $60-65/barrel for the next two-three years, barring “few ups and downs”, and aspires to prepare itself accordingly. The measures would look to optimise both operational costs and capital expenditures, which totals to approx. ₹60,000 crore, thus, translating to savings of about ₹9,300 crore.

Increasing efficiency

Mr. Kumar underlined that logistics was among the “bigger components” of costs which extends to both drilling as well as surface operations. Listing measures in the realm, among other things, the director for production stated that ONGC would be particularly looking to scale the Pipavav Supply Base in Gujarat.

“Almost 20% of the sailing will move to Pipavav, reason being the whole of Tapti Daman [block] area and the North of Mumbai [block] is closer to the Pipavav base,” he explained, adding, “The turnaround time becomes faster, the vessel takes less time and we will save fuel. Thus, we will be able to improve our efficiency.” Mr. Kumar stated that ONGC would also look to explore placing half their sailings through Pipavav supply base.

The company expects scaling up at the base would help augur more than ₹1,000 crore in savings.

Cost of execution

The senior ONGC executive stated that the state-owned explorer also worked to alter tangible aspects of drilling. According to him, this resulted in cost benefits of “about 25%”. In terms of project execution, Mr Kumar stated the company also altered its strategy in the offshore area. Offshore operations are generally more expensive than onshore operation owing to advanced engineering and logistical costs, among other things. Poignant to also note, in a broader context, ONGC has also endowed focus on addressing decline in production from their mature fields.

Separately, reflecting on a prioritised approach going forward, Mr Kumar stated, “ONGC drilled some 578 rigs last year. When we analysed those rigs, we also deliberated if all the wells are economically good or not. We thought why don’t we prioritise [accordingly].”

Green energy push

In response to a query from The Hindu about expanding renewable energy to undercut geopolitical currents, Mr. Kumar said ONGC would be looking at in-house expansion alongside acquisitions. The company aspires to possess 10GW of renewable capacity by 2030.