ONGC Executive: Sakhalin-1 Oil Output Now 180,000-185,000 b/d

NEW DELHI (Dow Jones Newswires), July 11, 2008

Crude oil production from Russia's Sakhalin-1 has declined to an average of 180,000-185,000 barrels a day from a peak of about 250,000 barrels a day last year, lowering India's Oil & Natural Gas Corp.'s (500312.BY) share of its light sweet Sokol crude, a senior executive of ONGC said Friday.

ONGC will tender to sell only one 700,000 barrel cargo in September, the executive, who didn't wish to be named told Dow Jones Newswires.

State-run ONGC usually sells two 700,000 barrels cargoes a month, the official said. But last month, ONGC offered only one cargo for loading in August.

"Production has declined from last year, but on an average we have managed to arrest some of those declines," he said.

"It's natural with oilfields, the production gradually flattens after peaking," the executive said.

ONGC, through its overseas unit ONGC Videsh Ltd. or OVL holds a 20% stake in the project, which is operated by ExxonMobil (XOM).

Sakhalin-1 has potential recoverable resources of 2.3 billion barrels of oil and 17.1 trillion cubic feet of gas, according to the project Web site.

The fall in OVL's share of Sakhalin-1 production could spell wider concerns for parent ONGC, India's largest oil producer, which is struggling to maintain declining production at its oilfields at home. With the news of Sakhalin production declining and domestic fields having negative to zero volume growth, the risk of ONGC reporting a consolidated production decline in the fiscal year that started April 1 is greater now, Goldman Sachs said in a note Friday.

"Our current estimate of 1% year-on-year consolidated production growth of ONGC for (this fiscal year) is entirely driven by 8% year-on-year growth in OVL," it said in the note.

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