Bloomberg
New Delhi

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 and Royal Dutch Shell curbed outlays. That could mean a saving of Rs49bn ($749mn) on planned exploration spending of Rs245bn 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% 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 modelling analyst at Interfax Energy’s Global Gas Analytics in London. “ONGC should utilise these services on its ongoing projects as much as it can and capitalise on new projects once oil prices recover. This is a strategy common among government-run companies globally.” ONGC shares rose the most in five weeks, gaining 4.2% to Rs257.75 at the close in Mumbai. The stock has dropped 35% in the past year, compared with a 2.9% increase in the S&P BSE Sensex. Brent crude, a global benchmark, has declined 43% over the period to about $53 per barrel.
ONGC plans Rs362.5bn 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% to Rs54.6bn in the three months ended June 30.
Indian Prime Minister Narendra Modi has made energy security a priority for a nation that imports the bulk of its oil. Production has declined in fields accounting for almost three-quarters of ONGC’s output, adding pressure on the company to find new reserves. ONGC intends to spend Rs11tn by 2030 to raise output. It’s seeking about 30 drilling vessels, including five deep-water rigs, Sengupta said in the September 23 interview.