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NEW DELHi: Output at ONGC Videsh, the overseas arm of the state-run explorer, will likely fall in the current financial year after rising for seven straight years due to a natural decline in fields and production cut commitments by key producers such as Russia and the UAE.
ONGC Videsh produced about 15 million metric tonnes of oil equivalent (mmtoe) in 2019-20, marginally higher than 14.83 mmtoe in 2018-19, mainly on increased production of gas, according to people familiar with the matter. The combined output from overseas fields for all Indian companies marginally declined to 24.5 mmtoe in 2019-20 from 24.7 mmtoe in the previous year.
In 2020-21, the output at ONGC Videsh is expected to decline by half a million tonnes of oil equivalent due to natural decline in fields, according to people familiar with the matter. The output would fall further due to artificial cuts by key oil-producing countries where ONGC Videsh has assets.
The OPEC+ group of 23 countries, led by Saudi Arabia and Russia, has been cutting output to support oil prices that have crashed amid deep demand destruction due to the coronavirus pandemic.
The oil price crash has also driven most upstream companies to cut capex for the current year. As a minority shareholder in most projects overseas, ONGC Videsh too is scaling down its capex plans. ONGC Videsh’s capex is estimated to be 15-20% lower than initially targeted Rs 7,200 crore in the current fiscal year, according to people familiar with the matter.
The effect of OPEC+ production cut is already visible in the UAE, where ONGC Videsh owns a stake in Lower Zakum Concession, according to people familiar with the matter. A cut is expected in Russia as well as Azerbaijan.
ONGC Videsh has 14 producing assets across several countries but depends predominantly on Russia for its annual output. In 2018-19, Russia contributed 62% of ONGC Videsh’s oil and gas production while Vietnam accounted for a tenth. The UAE, Myanmar and Azerbaijan made up 5% each.
Overseas oil and gas output at other Indian companies too will likely shrink as they are mostly invested in the same projects as ONGC Videsh. ONGC Videsh, which has proven reserves of 346 mmtoe, aims to raise output to 60 mmtoe by 2030.