Big-Oil Spending Cuts Lower Costs at Top India Explorer ONGC

(Bloomberg) -- The worst commodity slump in a generation has a silver lining for India’s state-run energy explorer.

Oil & Natural Gas Corp. predicts exploration costs will drop a fifth as fees for rigs and vessels moderate after businesses including BP Plc and Royal Dutch Shell Plc curbed outlays. That could mean a saving of 49 billion rupees ($749 million) on planned exploration spending of 245 billion rupees in the year through March 2016, Bloomberg calculations based on company estimates show.

“This is the only saving grace in the low oil-price regime,” ONGC’s Director Offshore Tapas Kumar Sengupta, who gave the estimate of a 20 percent drop in expenses, said in an interview in New Delhi. “We’ve awarded contracts for about 20 vessels and received a record 150 bids. We’ve placed orders at about half the earlier rates.”

The biggest explorer in Asia’s third-largest economy is betting that its highest capital expenditure in at least six years will pay off once oil prices revive. In contrast, the slump in Brent crude costs in the past year has led global majors such as BP and Royal Dutch Shell to cut billions of dollars from spending budgets.

“One’s pain is another’s gain,” said Abhishek Kumar, senior energy and modeling analyst at Interfax Energy’s Global Gas Analytics in London. “ONGC should utilize these services on its ongoing projects as much as it can and capitalize on new projects once oil prices recover. This is a strategy common among government-run companies globally.”

ONGC plans 362.5 billion rupees of capital expenditure in the 12 months that began April 1, and some two-thirds of that figure is earmarked for exploration, company filings and presentations show. Net income rose 14 percent to 54.6 billion rupees in the three months ended June 30.

Energy Security

The shares are down 38 percent in the past year, compared with a 2.5 percent climb in the S&P BSE Sensex index. Brent crude, a global benchmark, has declined 43 percent over the period to about $52 per barrel.


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