Oil and gas exploration, especially in deepwater, is a risky business that requires highly sophisticated technology which, in turn, requires huge funding. Those hoping to strike riches without equipping themselves with the appropriate technology and adequate expertise will almost certainly come to grief, as the Gujarat State Petroleum Corporation (GSPC) has. The state-owned company has spent over Rs.17,000 crore of public money over the last five years in the Krishna-Godavari Basin with nothing to show for it in terms of either oil or gas output. A report of the Comptroller and Auditor-General of India (CAG) points out — and quite rightly — that the project was badly planned, thereby leading to both cost and time overruns. In 2005, Gujarat Chief Minister Narendra Modi had proudly declared that the block had reserves of a massive 20 trillion cubic feet (tcf) of gas, even more than that of neighbouring Reliance Industries (which was estimated at 14 tcf). The buzz around the Gujarat ‘find’ was heightened with Mr. Modi naming the block Deendayal after Pandit Deendayal Upadhyaya. We know now that both the GSPC’s and Reliance’s reserves were overestimates, and that too by a long chalk. From an estimated output of 80 million standard cubic metres of gas a day at its peak, Reliance’s production is now in the low single digits. As for GSPC, the upstream regulator, the Directorate General of Hydrocarbons (DGH), marked down the reserves to a piffling 1.8 tcf after scrutinising field data.
Even the biggest and best oil companies make miscalculations while exploring frontier basins; such failures go with the territory — they occur despite the deployment of the latest technologies, often because oil and gas reservoirs are formed in complex depositional environments. The GSPC’s big mistake was not overestimation, but the somewhat unrealistic assumption that it could develop the highly complex deepwater field on its own. At a time when even ONGC with decades of experience was circumspect about how to go about developing its block in the KG Basin, GSPC with no comparable track record plunged headlong. The kind explanation for this approach is that it was a bad miscalculation. The unsparing one is that it was sheer hubris. Given the difficult nature of the high-temperature and high-pressure KG Basin field, GSPC should have roped in a technology partner, as Reliance did with BP. The company could have even considered collaborating with other PSUs such as ONGC or Oil India. GSPC is probably also guilty of not correcting the course after seeing that Reliance ran into technical problems in the same deepwater field despite accessing cutting-edge technology and global expertise. The urge to strike out independently despite a clear lack of technical expertise in a business fraught with risks has proved costly indeed for the company — and for the taxpayer.
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