State-run Oil and Natural Gas Corporation (ONGC) has unveiled a Rs 34,000-crore ($5-billion) investment plan to develop its KG Basin fields delayed for years, which would help boost the company's oil and gas output by a fifth in about four years.

 

This is the first major investment announced by an oil firm two weeks after the government decided on a policy that almost doubles the prices for gas from difficult reservoirs, such as the fields operated by ONGC in KG Basin.

 

ONGC executives had been wary of investing in the project at the current oil and gas prices, which have fallen about two-thirds in two years.

 

The government controls gas prices in India, but oil is benchmarked to international rates.

 

"We have analysed its economics. The economics is quite robust. We will be able to achieve the average threshold rate of return," Dinesh Sarraf, chairman of ONGC, said on why the project has become viable now. 

 

"We are hopeful that the oil and gas prices are going to improve," he added. Sarraf did not disclose the average cost of production nor the rate of return the company expected.

 

The project will yield a peak production of 3.5 million metric tonne (mmt) of crude oil per year, 17% of the company's current oil output, and 16.29 million metric standard cubic meters per day (mmscmd), 28% of the current as output,after four years.

 

The project will produce its first gas in June 2019 and oil in March 2020.

 

ONGC would spend Rs 34,000 crore over the next four years, with Rs 1,500 crore in the current fiscal year. The project will help boost ONGC's revenue by $1.89 billion and profit by $585 million in 2020-21, A K Srinivasan,irector finance), said.

 

The project involves developing just one—named cluster 2—of the three clusters it has placed all its KG discoveries in.

 

Cluster 1, where it is engaged in an gas extraction dispute with Reliance Industries, as well as cluster 3 are not  part of the current plan.

 

Cluster 2 has in-place reserves of 94 million tonne of oil and 74 billion cubic meters of gas.

 

"The key challenge would be to identify vendors, contractors and consultants for the project," Sarraf said. He said the company was confident of undertaking the deepwater project and did not require an international partner with experience in deepwater drilling.

 

KG Basin project has a depth of 600-1,500 meter, as against the lowest level of 100 meter at Bombay High, ONGC's best-known asset. The deepest the company has ever worked in is the Vasistha field off the eastern coast, which goes down up to 680 meter but is still a work in progress and expected to produce only from the next year.

 

Overcoming technological hurdles and meeting deadlines will be the key challenge for ONGC, which has faced several project delays in the past due to poor execution.

 

As part of the project, ONGC would set up a floating production, storage and offloading (FPSO) unit for processing oil, a gas processing platform and 430 km of sub-sea pipelines of various sizes.