Home >Companies >ONGC’s pact with ConocoPhillips on the rocks

Oil and Natural Gas Corp. Ltd (ONGC), India’s biggest energy explorer, and the world’s fifth largest independent oil and gas exploration firm, ConocoPhillips, appear to have ended their partnership.

“We are doing it alone. We have the technology and expertise for developing deep water blocks and reservoir management and, hence, we are doing it ourselves," said T.K. Sengupta, director-offshore, ONGC, in an April interview. He, however, did not give any reasons why the partnership with ConocoPhillips for deep water blocks in India was in trouble.

There is a sense of déjà vu that this evokes as time and again ONGC’s partners have either walked out citing poor prospects or the country’s complex regulations. ONGC signed a memorandum of understanding (MoU) with US-based ConocoPhillips in March 2012 to collaborate on the exploration of deep water blocks and shale reserves in India. The pact was signed after ONGC’s talks with several other firms, such as Exxon Mobil Corp., Petrobras SA, BG Group Plc, Eni SpA, Royal Dutch Shell Plc and Statoil ASA, collapsed as ONGC failed to strike favourable deals with them. However, none of the firms issued any official statement on the reason for quitting their India plans. Among the partnerships that never saw the light of day were those with Rocksource ASA of Norway and Inpex Corp. of Japan.

ONGC had won the Krishna-Godavari basin KG DWN 98/2 block, commonly referred to as the KG-D5 block, in the first round of the New Exploration Licensing Policy (NELP) auctions in 2000, the same year that Reliance Industries Ltd (RIL) won the adjoining D6 block. While RIL started production in 2009, ONGC’s block has yielded nothing so far. “We will be submitting a field development plan (FDP) by the second half of the year and production will begin from 2018-19," said Sengupta.

The firm is currently investing 40,000 crore on developing the field and is adopting a three-cluster approach. The second cluster will be developed first as the firm does not have the requisite approvals in place for the first. The third cluster, located at a depth of 2,500 metres, is not being developed currently as ONGC does not have the technology, said Sengupta.

Even the partnership for shale gas exploration with ConocoPhillips looks shaky, said ONGC executives. “We are currently in the initial phases of shale exploration and so far it has not been very encouraging. It will take a very long time to ascertain whether there is any commercial prospect in India," said one executive on condition of anonymity as he is not authorized to speak to the media. He did confirm that there was virtually no collaboration happening with ConocoPhillips on any front in India.

An email sent to ONGC seeking its response to the current status of its partnership with ConocoPhillips remained unanswered. The company has so far also not issued any official statement on whether the partnership is on or off. Another email sent to ConocoPhillips also did not elicit a response.

Attributing reasons for the repeated failure of partnerships, Debasish Mishra, senior director-consulting, Deloitte Touche Tohmatsu India, said: “In areas such as ultra-deep water exploration and production, enhanced oil recovery technologies for ageing fields, coalbed methane, gas hydrates, etc., Indian companies will definitely benefit from having access to technology from partners who have a proven track record in doing the same. Unfortunately, boundary conditions for such contributions are not drawn and valued properly, resulting in failure of partnerships."

He said these boundary conditions mainly refer to clauses such as the size of the stake offered to a foreign firm, evaluation and appreciation of the expertise of the partner and the preparation of detailed blueprints on mutual cooperation between the two partners.

“Companies coming to India would always want to have a share in the production pie by picking up a stake in the fields. The world over this is the way oil and gas partnerships work—in mature markets such as Brazil or newer discoveries in countries such as Mozambique," said an analyst with a domestic brokerage who did not want to be named. In this connection, he attributed the successful partnership between RIL and UK’s BP Plc to the fact that BP had been allowed to pick up a 30% stake in the venture.

India’s technical and regulatory complexity is another stumbling block for foreign companies, said Rahool Panandiker, director and partner, The Boston Consulting Group. “India is not a high-priority country geographically for many foreign players. When seen in the light of the regulatory maze that companies have to wade through and the returns an investment could generate, India becomes quite unattractive," he said.

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