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CAG raps ONGC for Rs 8K cr loss due to poor rig management

New Delhi: The Comptroller and Auditor General of India (CAG) has rapped India's largest oil and gas producer ONGC for poor planning in hiring and use of drilling rigs that resulted in a loss of Rs 7,995 crore.

In a report tabled in Parliament today, CAG said the state-owned firm lacked uniformity in preparation of annual rig requirement plan (RRP), delayed rig acquisitions and hiring, was inconsistent in deployment and had inefficient repair and refurbishment policy.

 CAG raps ONGC for Rs 8K cr loss due to poor rig management

The ONGC logo. Image courtesy ONGC website

ONGC's non-productive time or idling time of rigs ranged between 19 and 23 per cent over 2010-14. "The bulk of idling time costing Rs 6,418 crore was due to factors which could have been controlled by the company," CAG said.

The company also did not adhere to safety procedures and continued to do drilling/testing operations even after one anchor of its rig Sagar Vijay had snapped.

As a result, another anchor of the rig snapped which caused drifting of the rig from its location. Consequently, the well had to be closed and abandoned. As a result, expenditure of Rs 1,577.27 crore incurred by ONGC on drilling of the original location and drilling of a relief well by using another rig proved avoidable.

"The insurer did not honour the claim of ONGC on the ground that the latter had not followed recognised safe operating practice," the report said.

Also, the company did not adhere to the repair schedule for dry dock management and major lay-up repairs of jack-up rigs which was against an efficient operational practice.

Failure on the part of the company led to a situation wherein rigs were being operated with outdated/obsolete equipment, CAG said.

CAG said ONGC had prepared 5-year rig requirement on the basis of RRP, which included non-operational idling time of rigs that was entirely controllable by the company.

Annual Rig Deployment Plans (RDPs) were prepared on the basis of RRP. "Therefore, the Annual Rig Deployment Plans had an in-built inefficiency," it said.

While there was no uniformity in preparation of annual RDPs among the Assets and Basins of ONGC, the company failed to decide a policy on acquisition of new offshore rigs for over a decade -- from 2002 to 2015.

Meanwhile, four out of six owned offshore rigs outlived their economic usable life of thirty years.

CAG asked ONGC to ensure that the plans (five year plan, annual plan, rig requirement plan, rig deployment plan) are complete and consistent with each other and are complied with.

The situation where one out of every three wells drilled is un-planned needs to be corrected, it said, adding that the controllable non-productive time of past periods should not be loaded to future rig requirement plans and efforts to be taken to reduce such non-productive time.

CAG said drilling activities are key to hydrocarbon production and reserve accretion and constitute the single most significant operation of ONGC, both financially and operationally.

ONGC, it said, did not adhere to the repair schedule for dry dock management and major lay-up repairs of jack-up rigs which is against an efficient operational practice.

Failure on the part of the company led to a situation wherein rigs were being operated with outdated/obsolete equipment.

"While establishing the rationale for repair and refurbishment of jack-up rigs, the company considered
efficiency of owned rigs on par with that of hired and newly acquired rigs.

"However, as owned rigs had much lower efficiency compared to hired/new rigs, this assumption was incorrect. In fact, repair of old rigs would not be economically viable vis-à-vis hire/purchase of rigs if realistic efficiency of owned rigs were considered," CAG said.

Further, delays in finalising the scope of work for repair of two rigs led to cost escalations (156 and 57 per cent) besides skewing the financial viability of repairs.

Post repair, the efficiencies of jack-up rigs and drill ships did not improve significantly. Rig Sagar Vijay upgraded for drilling wells with water depth of 900 meters did not actually drill a single well of more than 400 meter water depth between 2005 and 2013, according to CAG.

CAG said there were persistent delays at each stage of tendering process for hiring of rigs. "As a result, ONGC failed to drill the locations that had been planned by it."

One-third of the locations actually drilled by the company during 2010-14 were not planned. Actually drilled 1867 locations included 615 locations that had not been planned. This rendered the elaborate annual planning exercise meaningless.

CAG asked ONGC to ensure that the plans (five year plan, annual plan, rig requirement plan, rig deployment plan) are complete and consistent with each other and are complied with. The situation where one out of every three wells drilled is un-planned needs to be corrected.

The controllable non-productive time of past periods should not be loaded to future rig requirement plans and efforts to be taken to reduce such non-productive time, it said.

Also, initiation of indents and tendering procedure for acquisition/hiring/rehiring of rigs needs to be done on time at each stage of tendering so that rigs are mobilised on time.

"Considering that most offshore rigs owned by the Company had outlived their useful lives, policy regarding acquisition of rigs, pending for over a decade, should be finalised expeditiously," CAG said.

The assumptions made while analysing cost-benefit of repairing old owned rigs, having outlived their useful lives, should be realistic, based on past experience. This would enable a balanced decision regarding major repairs of these rigs.
PTI

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Updated Date: Dec 10, 2015 13:36:09 IST