ONGC to spend on drill ships, rigs as costs drop

Mumbai

OIL and Natural Gas Corp (ONGC), India's biggest explorer, is preparing to spend on its biggest ever crude binge as sub-US$50 oil halves the cost of rigs and services.

State-run ONGC is contracting as many as five deepwater drill ships and dozens of jack-up rigs as it launches a US$5 billion development programme in the Krishna-Godavari Basin off the east coast of India, said chairman Dinesh Kumar Sarraf. The company wants to make use of the drop in hiring rates for vessels and oilfield services to lower costs and boost profit, he said.

"This is the largest ever campaign undertaken by us," Mr Sarraf said. "Never in the past have we had five rigs in offshore deepwater at one time. We believe this is the right moment when we can increase our investment."

The company, which intends to spend 11 trillion rupees (S$219.6 billion) by 2030 to raise output, is key to Prime Minister Narendra Modi's target of cutting import dependence by 10 per cent in the next six years. That goal is crucial for a country that imports most of its oil. India will be the fastest growing crude consumer in the world till 2040, according to the International Energy Agency.

"It makes immense sense for an oil explorer to undertake capex (capital expenditure) in current times when oil field services costs and charter rates have dropped so sharply, especially if they have a strong financial profile," said K Ravichandran, co-head, corporate ratings at assessor ICRA Ltd. "Lower debt in relation to reserves gives ONGC exceptional strength in comparison to others."

Offshore jack-up rigs, which cost as much as US$90,000 a day when oil was surging, now cost about half that, Mr Sarraf said.

The flagship explorer in Asia's third largest economy is betting that its spending will pay off once oil prices revive. Production has declined in fields accounting for almost three-quarters of ONGC's output, adding pressure to bring onstream new assets. BLOOMBERG