India's ONGC expects Q3 oil, gas output to rise on new projects

India's state-run explorer Oil and Natural Gas Corporation expects oil and natural gas output to rise in its third quarter from the previous quarter as production from new projects comes online, with more overseas partners seen as crucial for accelerating the rate of domestic production, company officials and analysts said.

ONGC's output expectations for the October-December quarter have been based on higher production from the KG 98/2 oil and gas field in the Krishna Godavari basin on India's east coast. The flagship explorer's fiscal year runs from April to March.

In the first quarter, ONGC posted crude production of 5.3 million mt (425,000 b/d), down 3.3% year on year, the company said in an Aug. 11 regulatory filing. Natural gas output in the same quarter reached 5.2 Bcm, down 3% on the year.

The shutdown of Panna-Mukta offshore platforms and a severe cyclone that hit India's west coast in June, disrupting offshore and onshore production, were the main reasons Q1 output declined, the company said.

ONGC has adopted a strategy to advance new well drilling activities to raise overall production in the July-September quarter, it said.

ONGC realized a Q1 price of $76.50/b for crude oil produced from its own fields, down 29.5% from year-ago levels. It realized $6.70/MMBtu for Q1 gas output, up 10% from a year ago.

In Q1, ONGC declared four discoveries -- one on-land and three offshore -- and monetized the Gopavaram-21 discovery.

From April 1, 2022-March 31, 2023, its last fiscal year, ONGC's crude oil and condensate output dipped 1% from the year prior to 21.49 million mt, while its total gas output slid 1.5% year on year to 21.35 Bcm.

ONGC shares around 68% of India's oil and gas output. It carries out a mandate of raising oil and gas output to cut around 85% of dependency on crude imports to meet the appetite for energy demand from the world's third-largest importer.

Overseas participation

While ONGC continues to play a dominant role in India's upstream sector, attracting foreign players and tapping into foreign upstream investments is crucial for the sector, according to analysts.

The eighth round of India's open acreage licensing mechanism offering 10 oil and gas blocks has drawn significant interest from major entities like ONGC and Reliance-BP, paving the way to boost exploration and production.

According to a notification by the country's Directorate General of Hydrocarbons, ONGC bid for nine blocks. Oil India, Vedanta, Sun Petrochemicals and the Reliance Industries-BP joint venture had bid for a block each. ONGC and Reliance-BP were the only bidders for the ultra-deepwater blocks in the Mahanadi and the Krishna-Godavari basins, respectively.

But there has not been much interest from the international upstream sector.

"The government betting on ONGC to collaborate with GIOCs such as ExxonMobil, Chevron, TotalEnergies and Equinor to assess India's frontier basins did not result in fruitful partnerships, as evidenced from the bids received in the OALP VIII bid round," said Mansi Anand, senior research analyst at S&P Global.

"Although the government made a move to reduce windfall taxes on domestic production to zero in its mid-May review of the tax scheme, more tax reforms and incentives are required for foreign participation in the upstream sector," she added.

According to S&P Global Commodity Insights, between 2023-32, India's oil and gas production is expected to achieve a mid-decade peak of around 2027, primarily due to KG-Basin projects operated by Reliance Industries and ONGC. However, these are old discoveries that have been in development for a while and are coming online in 2023. These projects include Cluster 2A in KG-DWN-98/2 and the Dhirubhai 55 (MJ) field.