No one can make money on ONGC's rate of $26/barrel

Vol 10, PW 23 (22 Mar 07) Exploration & Production

Prize and Aban are undoubtedly justified in asking ONGC to increase the crude oil price from $26 to $35/barrel for Hirapur, Khambel and West Bechraji.

ONGC might be technically right in saying the Prize-Aban demand is a post-contractual issue, but taking cover under a â€کtechnicality’ is to miss the point. Hirapur, Khambel and West Bechraji were tendered out in September 2003 when crude oil prices were low, as was the cost of services.

Hire charges for services today are far beyond the 2003 levels but Prize-Aban still only get $26/barrel. ONGC recognises the sharp hike in service charges, otherwise it would not have raised the crude oil price to $35/barrel in its second tender for onshore marginal fields last year.

On the grounds of equity and fair play, this logic should be extended, to the first set of onshore marginal fields. “These are marginal fields and the returns are in any case not high,â€‌ says a source.

“At today’s costs the returns are even poorer at $26/barrel.â€‌ Under the terms of the service contract with ONGC, Prize and Aban have a two-year assessment period for these fields after which they have the option to continue or walk out.

At Hirapur, the two-year period is over but at Khambel and West Bechraji the consortium could do nothing on the ground for 18 months because of delays beyond its control. “We have been informally told by ONGC that this delay will be overlooked,â€‌ says a consortium source.

Hirapur is now producing about 300 b/d from three wells but production can go up to 500 b/d after work over jobs planned in April and May. Neither Khambel nor West Bechraji is producing.

Wells at Khambel are likely to be deeper than at Hirapur and the existing ONGC wells have water cut. Both issues will hike production costs.

Ditto for West Bechraji where the oil is heavy. Prize and Aban have committed one well at Khambel and five at West Bechraji but may choose to walk away if ONGC refuses to back down.

“Hirapur could be slightly economical because the volumes are larger and costs lower,â€‌ we hear. “We may just recover our investments (at Hirapur) but not at Khambel and West Bechraji.