ONGC’s reserve accretion sees record rise in FY09

Reserves Go Up By 68.9 MTOE Even As Current Production Dips To A Three-Year Low

INDIA’S largest petroleum producer ONGC recently announced a record jump in its annual addition to domestic and overseas petroleum reserves for FY09, an indicator that the country is on a strong footing as far as energy security is concerned. Stagnant current production, however, is cause for concern.
In FY09, reserves went up by 68.9 million tonne of oil equivalent (MTOE) from ONGC’s fields in India alone — an 18-year high — even as most companies globally are reporting a depletion of resources. While the recent announcement means ONGC will be able to produce more from its existing oilfields, for FY09, the company reported production of 47.85 MTOE, a three-year low.
ONGC’s ultimate reserves net of cumulative production stood at 1.12 billion tonne of oil equivalent in March 2008, which will now rise to 1.14 billion tonne. This means the company will be able to maintain its production level for nearly 23.8 years from its existing discoveries. Ultimate reserves refer to the volume of hydrocarbons the company expects to extract from its oilfields over their lifetime.
A further 114.24 MTOE of reserves were accounted for by its overseas arm OVL, which acquired the UK-based Imperial Energy for $2.8 billion, with around 25 MTOE of proven reserves. ONGC’s joint ventures in India, though, added just 2.82 MTOE. At the group level, ONGC’s total reserve accretion for FY09 stood at 185.96 MTOE, a historic high. On the production front, the company’s performance has been deteriorating. It was only in FY06 that the company reported a lower production than in FY09, following an accident at Mumbai High.
ONGC’s crude oil production during the March 2009 quarter is an estimated 6.5% lower y-o-y at 6.03 million tonne, which is the lowest since the quarter ended December 2005.
Sudhir Vasudeva, director (offshore), ONGC said that despite the natural decline phase in ageing fields, ONGC’s production between 2000 and 2008 has increased by 3%.
He added that investment plans to maintain this level of production are on, despite the fall in crude oil prices. The officers’ strike in January and delays in the arrival of some materials, he said, had resulted in a fall in offshore production in the March 2009 quarter, but in April 2009, he added: “We are back on track.” This jump in reserve accretion, while the production stagnated, has resulted in a marked improvement in the company’s reserve replacement ratio. This ratio between the increase in petroleum reserves during the year and the quantity withdrawn by way of production underlines the longevity of the company’s operations.
RRR above 1 indicates the company’s production life is increasing with every passing year. ONGC has maintained an RRR above 1 for five consecutive years. As a result, the company, which had 21.8 years worth of reserves in FY05, now has 23.8 years of ultimate reserves with it.