Dishonoured pact, failed privatisation bids: ONGC's Mumbai High sees redemption in BP deal

New Delhi: US giant Marathon Oil pledging investments and technology to raise output from Mumbai High oil and gas fields, companies such as Occidental Petroleum seeking a stake and at least two privatisation bids have seen final culmination in global energy giant BP signing up to lift output from India's prime field lying off the Mumbai coast.

State-owned Oil and Natural Gas Corporation (ONGC) last month signed a technical service contract with BP to reverse declining output from the ageing field, according to statements by the two firms. BP has pledged to lift oil production by 44 per cent and gas output by 89 per cent from India's largest field in exchange for a fixed fee.

The BP deal is exactly on lines of the one ONGC had in 1998-99 signed with Marathon Oil Corporation, according to company insiders and industry sources.

Just like BP, Marathon wasn't getting any stake in the field but only a pre-agreed share in the incremental oil and gas production over a defined baseline. But unlike BP, Marathon was to make its own investments in technological changes needed to boost output.

In the BP deal, ONGC will make all investments and the London-headquartered firm is only to give technical advice. For the first two years, BP will get a fixed fee for its advice and thereafter a share of the incremental oil and gas.

"BP has no skin in the game. Marathon was not to be reimbursed the amount it invested if the production did not increase," a source with knowledge of the matter said.

ONGC had signed a memorandum of understanding with Marathon but the US energy giant walked out of it when baseline was changed in the documents submitted to the Ministry of Petroleum and Natural Gas for approval.

"ONGC never achieved the baseline production indicated in the revised documents," the source said.

Other than Marathon, few other global energy giants too were interested in Mumbai High but they wanted a stake which the law did not provide for.

Those that eyed a stake in the production sharing contract (PSC) included Shell and Occidental Petroleum, industry sources said.

With the field seeing a steady decline in output, a stake sale had been considered on at least two occasions in recent years but it could not go through because of stiff opposition from ONGC management.

A high-level committee headed by the then Niti Aayog Vice Chairman Rajiv Kumar in late 2018 considered "transferring" western offshore oil and gas fields of Mumbai High as also some fields in Mumbai offshore, Assam, Rajasthan, and Gujarat to private/foreign companies. The oil ministry twice in 2021 told ONGC to give away 60 per cent stake, plus operating control of Mumbai High and Bassein fields to foreign companies.

ONGC had in June last year floated a tender seeking advanced recovery technologies and expertise from foreign firms to reverse declining output at its flagship Mumbai High fields, offering a share of revenue from incremental production plus a fixed fee but not any equity stake.

BP and Royal Dutch Shell put in an expression of interest (EoI) at the close of the tender in September 2024. The tender called for bids from companies that had a minimum revenue of $75 billion.

Shell, however, did not put in the final price bid, which was to detail the incremental production and the revenue share sought from it. BP was the only firm that put in the bid.

ONGC last month said it selected BP as its technical service provider to assist in boosting output from a baseline crude production of 45.47 million tonnes and 70.40 billion cubic metres (BCM) of gas.

BP projected an increase in oil production by 44 per cent to 65.41 million tonnes and gas output by 89 per cent to 112.63 BCM from the Mumbai High field, ONGC had said adding the increase in production is expected to begin in the next fiscal year starting April 1, with full-scale visibility anticipated by 2027-28.

According to ONGC, BP will receive a fixed fee for the first two years, followed by a service fee based on a pre-agreed percentage share of the revenue from net incremental production, after recovering incremental costs.

The service fee is however subject to a 25 per cent ceiling, the firm said in a third quarter earnings presentation this month. The contract period with BP is 10 years, which can be extended by five years.

BP will deploy an expert technical team for a minimum period of two years, it said, adding BP will review field performance and identify improvements in wells, reservoirs including water injection, and facilities management.

According to ONGC, the incremental production is expected to generate additional oil and gas revenue of up to $10.3 billion and as much as $5 billion in taxes and other levies to the government.

Mumbai High field currently produces around 1,32,265 barrels of oil per day and around 13 billion cubic metres of gas (less than 10 million standard cubic metres per day or mmscmd). This output was projected to decline to about 75,000 bpd of oil and less than 4.5 mmscmd of gas by 2037-38.

For a country that is more than 85 per cent dependent on imports to meet its needs for crude oil, which is turned into fuels like petrol and diesel in refineries, and about half of its requirement of natural gas, that is used to produce electricity, make fertiliser and turned into CNG for running automobiles and piped to household kitchens for cooking, the BP deal holds good promise.

The Mumbai High field (previously Bombay High field) - India's most prolific oil field - lies some 160 kilometers in the Arabian Sea off the Mumbai coast. It was discovered in February 1974 and started production on May 21, 1976.

The field hit a peak of 4,76,000 barrels of oil per day and 28 billion cubic metres of gas in 1989 and has since seen a gradual decline in output.

Its current output makes up for almost 38 per cent of India's production and 14 per cent of consumption.

ONGC believes the field still has a balance reserve of 80 million tonnes (610 million barrels) of oil and over 40 bcm of gas and hence needs partners who can help tap them.

The firm spent Rs 46,315.32 crore since 2000 in various redevelopment plans in order to arrest the natural decline that sets in an ageing and mature field.

ONGC produced a total of 18.4 million tonnes of crude oil in 2023-24 (April 2023 to March 2024) fiscal year, down from 18.54 million tonnes in the previous year. Gas output declined 3.2 per cent to 19.974 bcm.