ONGC starts oil production from delayed $5 billion deep-water project

New Delhi: State-owned Oil and Natural Gas Corporation (ONGC) on Monday said it has started oil production from its much-delayed flagship deep-sea project in Krishna Godavari basin in Bay of Bengal, which will help reverse years of decline in output.

The 'first oil' from the deep-water KG-DWN-98/2 block in Bay of Bengal has flowed on January 7, the firm said in a statement.

Oil Minister Hardeep Singh Puri also announced the start of production in a post on X but neither he nor ONGC gave out the amount of oil being produced.

'This 98/2 project is likely to increase ONGC's total oil and gas production by 11 per cent and 15 per cent respectively,' ONGC said in the statement.

ONGC produced 18.4 million tonnes of crude oil and about 20 billion cubic metres per day of gas in the 2022-23 fiscal year (April 2022 to March 2023).

Puri said the 'production is expected to be 45,000 barrels per day and over 10 million standard cubic metres per day of gas' from the Cluster-2 discoveries in the block. He however did not give the time lines for reaching those levels of output.

Last month in a written reply to a question in Rajya Sabha, Minister of State for Petroleum and Natural Gas Rameswar Teli had stated that ONGC will in May 2024 start commercial production of crude oil from the block.

The KG-DWN-98/2 or KG-D5 block, which sits next to Reliance Industries' KG-D6 block in the KG basin, has a number of discoveries that have been clubbed into clusters.

Located 35 kilometres off the coast of Andhra Pradesh in water depths ranging from 300-3,200 metres, the discoveries in the block are divided into Cluster-1, 2 and 3. Cluster 2 is being put to production first.

As per original plans, oil production from Cluster-2 should have begun by November 2021, but was delayed because of the Covid pandemic. Thereafter, ONGC set May 2023 as the first Cluster-2 oil production deadline but then extended it to August 2023 and thereafter extended the flow of first oil every month, with the last deadline announced being December 2023.

"Valiantly combating various technological and Covid-related challenges, ONGC had successfully executed Phase 1 of the project in March 2020, achieving the commencement of gas production from U field of the KG-DWN-98/2 Block in record time of 10 months. With commencement of this first oil on January 7, 2024, ONGC is nearing completion of Phase 2, culminating into commencement of oil production from the 'M' field of KG-DWN-98/2," ONGC said.

It went on to state that the development of this field faced unique technical challenges due to the waxy nature of the crude.

"To overcome those, ONGC employed innovative pipe in pipe technology, a first-of-its-kind initiative in India. While some subsea hardware involved in this development has been sourced internationally to meet specific requirements, the majority of fabrication works were carried out at modular fabrication facility at Kattupalli which highlights ONGC's commitment to promote 'Make in India', contributing towards a self-reliant energy sector in India," it said.

The project, it said, is on track with final phase of project with the balance oil and gas fields of the block scheduled to be put on production by mid-2024. 'Peak production of field is expected to be 45,000 barrels of oil per day (bopd) and over 10 mmsmd of gas.'

ONGC has hired floating vessel Armada Sterling-V, owned 70 per cent by SPOG (Shapoorji Pallonji Oil & Gas) and 30 per cent by Malaysia's Bumi Armada, for producing oil from below seabed.

The FPSO (floating production, storage and offloading vessel), Armada Sterling-V, had been waiting to receive oil since January 2, 2023, after she was hooked up on December 27, 2022.

In the KG-D5 block, Cluster-1 consists of three discoveries. FDPs (field development plans) of 2 discoveries were approved in 2019. This project is currently in the development stage.

In Cluster-3, there is one ultra-deep water gas discovery which would be the second deepest hydrocarbon discovery in the world, when monetised. The FDP is scheduled to be submitted by January 2026.

ONGC had proposed a FDP for Cluster-2 in April 2018, with an estimated capital expenditure of $5.07 billion and operational expenditure of USD 5.12 billion over a field life of 16 years.

The Cluster-2 field is divided into two blocks namely 2A and 2B, which as per the original investment decision were expected to produce 23.52 million metric tonnes of oil and 50.70 billion cubic metres (bcm) of gas over the life of the field.

Cluster 2A was estimated to contain reserves of 94.26 million tonnes of crude oil and 21.75 bcm of associated gas, while Cluster 2B is estimated to host 51.98 bcm of gas reserves.

Cluster 2A was anticipated to produce 77,305 barrels of oil per day (bopd) and associated gas at a rate of 3.81 million metric standard cubic metres per day (mmscmd) over 15 years.

Cluster 2B was expected to produce free gas of 12.75 mmscmd from eight wells and has a 16-year life.

But ONGC is now projecting a lower output - 45,000 bpd of oil and up to 2.5 mmscmd from Cluster 2A and around 9 mmscmd from Cluster 2B.