KOLKATA (miningweekly.com) – Indian State-run oil, gas exploration and production (E&P) major ONGC is expected to report a 3.4% decline in production during the current financial year, closing on March 31, 2020.

According to a company official, during the first nine months of the financial year, ONGC’s production was maintained at almost the same level as the previous period and this trend would continue during the remainder of the months, which would translate into a decline in total production.

In April to December 2019, ONGC recorded a 4.3% fall in crude oil production to 17.53-million tons, while natural gas production during the period was down 2.1% to 18.5-billion cubic meters (bcm).  During 2018/19, the E&P major had recorded crude oil production of 24.3-million tons and 25.81 bcm of natural gas.

The decline in production would be coupled with a sharp fall in aggregate revenues for ONGC, since the administered price mechanism (APM) governing the domestic price of natural gas too was expected to be revised downward by the government, in line with softening of international natural gas prices, the official said.

However, the company was optimistic of reversing the falling trend in the coming financial year, with production from the KG98/2 asset in the Godvari basin in southern India, and few other assets, to be brought into production during the coming year, the official added.

ONGC has maintained that the structure APM was such that the fall in the domestic price was more accentuated than the actual fall in international price. ONGC had undertaken some greenfield natural gas projects at a time when prices were higher and the company would need to re-look the viability of some of these projects if domestic price under APM fell below $3-million a metric British thermal unit (mmBtu).

For the second half of the current financial year, the government had lowered the domestic natural gas price under APM to $3.6/mmBtu from $4.1/mmBtu during first half of the financial year. Government officials and industry analysts forecast that the APM was likely to be further lowered to $2.7/mmBtu in the first six months of the new financial year.

ONGC has made several representations to the government that low administered price of natural gas in the local market was a deterrent for the company in development of new assets and negative for return on investments for the company.

ONGC had earlier stated that between 2017 and 2019, the company had lost out an estimated $718-million owing to low natural gas pricing under APM.