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ONGC blames policies for Krishna-Godavari delay

27th February 2018

By: Ajoy K Das

Creamer Media Correspondent

     

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KOLKATA (miningweekly.com) – India’s national exploration and production (E&P) major, ONGC has said that it would miss the June 2019 deadline to start production from its deep-water Krishna-Godavari (KG) oil and gas block on the east coast.

In a regulatory filing, ONGC cited changes in government policy as the reason for delays in starting operations from one of its largest assets, with sources adding that first flow of gas would not be possible before the second half of 2020.

ONGC said that two major policy changes of the government – the introduction of a uniform pan-India indirect tax regime under the Goods and Service Tax and the mandatory use of steel produced by domestic steel mills for all government projects – had led to delayed completion of the deep-water project.

ONGC in 2016 approved an investment of $5.07-billion to develop the assets christened KG-DWN-98/2 and KG-D5 in the Bay of Bengal.

However, according to filings of the company, the “introduction of various new policies, concerning the oil and mining sector led to deferment of tendering activities. As of now, the project schedules are being maintained as planned. But due to [the] very complex nature of the project, there is a possibility that the schedules may get exhausted which will only be known at a later date.”

As per ONGC’s plans, it aimed to produce 15-million standard cubic metres a day of gas and 77-million barrels a day of crude oil.

The operationalisation of the KG basin asset is critical for ONGC against the backdrop that it is currently operating ageing oil and gas fields, most having been in production for more than 30 years and the company is facing a declining rate of production ranging around 7% a year and having to meet rising capital expenditure to maintain production from its mostly ageing assets.

During 2016/17, ONGC’s crude oil production was pegged at 20.855-million metric tons, recording a 1% fall over the previous financial year.

In a related development, a government panel has approved an investment of $4-billion by Reliance Industries-BP combine to develop three natural gas assets at the KG basin, close to assets under ONGC.

“The management committee has approved three field development plans in KG-DWN-98/3 by RIL, BP, Niko which will bring an envisaged capex of [an] estimated $4-billion in the prolific eastern offshore India,” a statement by upstream regulator the Directorate of Hydrocarbons said.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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