Docmnent of

The World Bank

FOR OmCIAL USE ONLY

Repowt N 13683

PROJECT COMPLETION REPORT

INDIA

CAMBAY BASIN PETROLEUM PROJECT

(LOAN 2403-IN)

NOVEMBER 4, 1994

Oil and Gas DivisionIndustry and Energy DepartmentFinance & Private Sector Development

This document has a restricted distribution and may be used bv recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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WEIGHTS AND MEASURES

1 Metric Ton (mt) = 1,000 Kilograms (kg)1 Metric Ton (mt) = 2,204 pounds (lb)1 Meter = 3.28 Feet1 Kilometer (km) = 0.62 Miles1 Cubic Meter = 35.3 Cubic Feet (cft)1 Barrel (bbl) = 0.159 Tons1 Metric Ton of Oil (39°API) = 7.60 Barrels1 Normal Cubic Meter (Nm3)

of Natural Gas = 37.32 Standard Cubic Feet (SCF)

ABBREVIATIONS

bbl - Barrelbbl/d - Barrels per dayBOP - Bombay Offshore ProjectDCF - Discounted CashflowDEA - Department of Economic AffairsEOR - Enhanced Oil RecoveryGOI - Government of IndiaICB - International Competitive BiddingIDT - Institute of Drilling TechnologyLPG - Liquefied Petroleum GasMMCMD - Million Cubic Meters per DayNGL - Natural Gas LiquidsOIL - Oil India LimitedONGC - Oil and Natural Gas CommissionPCR - Project Completion ReportSAR - Staff Appraisal ReportTCF - Trillion Cubic FeetWO - Work overtoe - Tons of Oil Equivalent

FISCAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Office of Director-GeneralOperations Evaluation

November 4,1994

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on India:Cambav Basin Petroleum Project (Loan 2403-IN)

Attached is the Project Completion Report on India - Cambay Basin Petroleum Project(Loan 2403-IN) prepared by the Finance and Private Sector Development Vice Presidency, with Part IIprovided by the Borrower.

The objective of this project was to increase the long-term production of petroleumresources from the Cambay Basin in Gujarat State. This was to be accomplished by an integratedprogram to expand exploration programs, upgrade the development of known established resources,rehabilitate facilities in developed fields, undertake pilot operations in enhanced production techniques,and provide training in all aspects of petroleum exploration and production activities. With the exceptionof the training component, which was never implemented, the project was successfully implemented ata substantial lower cost than originally estimated.

Financial savings were used to increase seismic data acquisition, drill four offshoreexploration wells in addition to the original four onshore wells, and increase the number of developmentand rehabilitation wells. Three additional enhanced recovery schemes were also introduced. The increasein project related oil and gas production was substantially greater than originally estimated.

The project outcome is rated as satisfactory and sustainability as likely. Institutionaldevelopment is rated as negligible.

The PCR is of high quality and provides insightful discussions of the reasons for the largecost underruns as well as the implementation difficulties encountered in procurement.

No audit is planned.

Attachment

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

INDIA

CAMBAY BASIN PETROLEUM PROJECTLOAN 2403-IN

TABLE OF CONTENTS

Page No.PREFACE. . . . . . . . . . . . . . . . . . . . . . . . . .iEVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . ii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . .A. Project Identity . . . . . . . . . . . . . . . . . . . 1B. Background .1C. Project Objectives and Description . . . . . . . . . . .D. Project Design and Organization . . . . . . . . . . . . 2E. Project Implementation . . . . . . . . . . . . . . . . . 3F. Project Results. . . . . . . . . . . . . . . . . . . . 4G. Project Sustainability . . . . . . . . . . . . . . . . . 6H. Bank Performance . . . . . . . . . . . . . . . . . . . . 6I. Borrower Performance . . . . . . . . . . . . . . . . . . 7J. Project Relationship . . . . . . . . . . . . . . . . . . 8K. Consulting Services . . . . . . . . . . . . . . . . . . 8L. Environmental Considerations . . . . . . . . . . . . . . 8M. Project Documentation and Data . . . . . . . . . . . . . 8

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . 9

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . 111. Related Bank Loans . . . . . . . . . . . . . . . . . . . 112. Project Timetable . . . . . . . . . . . . . . . . . . . 113. Loan Disbursements . . . . . . . . . . . . . . . . . . . 124. Project Implementation . . . . . . . . . . . . . . . . . 135. Project Costs & Financing . . . . . . . . . . . . . . . 13

A. Project Costs . . . . . . . . . . . . . . . . . . . . 13B. Project Financing . . . . . . . . . . . . . . . . . . 14

6. Project Results . . . . . . . . . . . . . . . . . . . . 14A. Direct Benefits . . . . . . . . . . . . . . . . . . . 14B. Physical Work . . . . . . . . . . . . . . . . . . . . 14C. Economic Performance . . . . . . . . . . . . . . . . 15D. Financial Performance . . . . . . . . . . . . . . . . 16E. Oil Production - W. Region . . . . . . . . . . . . . 17F. Studies . . . . . . . . . . . . . . . . . . . . . . . 18

7. Status of Covenants ... . . . . . . ... . . . . . . 198. Use of Bank Resources . . . . . . . . . . . . . . . . . 20

A. Staff Inputs . . . . . . . . . . . . . . . . . . . . 20B. Missions .20

Ttis document has a restricted distribution and may be used by rocipients only in the performance of their| official duties. Its contents may not otherwise be disclosed without World Bank authorization.

i

INDIA

CAMBAY BASIN PETROLEUM PROJECT(LOAN 2403-IN)

PROJECT COMPLETION REPORT

PREFACE

This is the Project Completion Report (PCR) for the Cambay BasinPetroleum Project, for which Loan 2403-IN in the amount of US$242,500,000 wasapproved on May 25, 1984. The loan was closed on September 30, 1993, two yearsbehind schedule. It was fully disbursed and the last disbursement was on January1, 1994.

The PCR was prepared by the Oil and Gas Division (IENOG) of theIndustry and Energy Department (Preface, Evaluation Summary, Parts I and III).The Borrower has prepared his Completion Report, a condensed version of which isincluded as Part II.

The PCR is based, inter alia, on the Staff Appraisal Report; the Loanand Project Agreements; supervision reports; correspondence between the Bank andthe Borrower; and internal Bank memoranda.

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INDIA

CAMBAY BASIN PETROLEUM PROJECT(LOAN 2403-IN)

PROJECT COMPLETION REPORT

EVALUATION SUMMARY

OblectivesThe primary objective of the Cambay Basin Petroleum Project was to assist

the Government of India (GOI), specifically the Western Region of the Oil &Natural Gas Commission (ONGC), in optimizing the long-term development ofpetroleum resources in the Cambay Basin (Gujarat State) . This was to beaccomplished by aiding in the development of several underdeveloped fields andimproving remedial work on existing wells. In addition, selective exploratoryactivity, seismic survey in the Gulf of Cambay, the drilling of eight deepexploratory wells (4 onshore and 4 in the Gulf of Cambay), and enhanced oilrecovery pilot schemes were included. The goal of the project was to arrest andreverse the decline in production which was in effect at the time and to providea basis for future development and production of oil and gas. In addition tofinancial support, the project was designed to upgrade and modernize developmentthrough the infusion of the latest technology in terms of equipment, material andservices. (See para 6.)

Im=lementation ExDerienceThe project was satisfactorily implemented even though a two-year extension

was necessary to accomplish all objectives. A defining feature of the CambayBasin Petroleum Project was the substantial underrun in costs, being about one-half of that estimated at appraisal. This permitted a significant expansion toproject components to the overall benefit of the project. Another importantaspect was that the greater use of local contractors than envisioned atappraisal, contributed to a far larger proportion of local costs vis-a-visforeign exchange. Thus the substantial over estimate of project costs atappraisal versus actual experience was caused primarily by a 67% Rupeedevaluation versus the US$ over the project life and the sharp break ininternational oil prices in 1986 with a commensurate decline in prices for oil-related goods and services. The appraisal was made in 1983 when both oil pricesand related service prices were at all-time highs with every evidence for furtherincreases. It also appears that project cost estimates at appraisal were biasedtoward the high side, the safe side as seen at the time. (See para 12.)

Procurement problems were commonplace during the Cambay Basin PetroleumProject, most of which were self inflicted, which delayed implementation andadded to Bank supervision. (See para 11.) The most serious procurement delayinvolved the contract for exploratory drilling in the Gulf of Cambay which initself was responsible for the 2-year postponement of the Loan closing date.While procurement delays often resulted in cost reduction due to decliningprices, it should be remembered that the revenue stream was delayed by about twoyears.

The decisions by ONGC to forego the training component and to back off ofadditional agreed seismic surveys in the offshore Gulf of Cambay appear to havebeen questionable. Both decisions were taken counter to Bank recommendations.(See paras 16g & 21.)

ResultsThe Cambay Basin Petroleum Project objectives were met, generally exceeded.

The development and workover components provided a production increment of 2.5million tons of oil and 500 million cubic meters of gas during the peak years of1988-92. The expected lifetime increment of production is 26.7 million tons ofoil and 5480 million cubic meters of gas. In terms of oil, the project exceeded

iii

appraisal projections by 0.5 million tons per year at peak production and byabout 10 million tons over lifetime production. In terms of gas, the projectexceeded appraisal projections by 368 million cubic meters per year at peakproduction and by 3400 million cubic meters over equivalent lifetime production.With respect to both oil and gas, the building up of production paralleled thatforecast at appraisal. (See para 16.)

With respect to economic results, the actual return substantially exceededthat projected at appraisal, with lower oil prices being more than offset byreduced project costs. In terms of internal rate of return to ONGC, the projectis expected to vastly exceed the 17.5% projected at appraisal. (See para 17 &18.)

Intangible benefits include the exploration results and the successful Balolheavy oilfield in-situ combustion pilot for enhanced oil recovery. The Lanwaheavy oil field in-situ combustion project also appears positive. Theexploration component includes the first seismic survey in the harsh (10 mdiurnal tides) operating environment in the offshore Gulf of Cambay. Some nineprospects were delineated and four were drilled resulting in two promising butas yet unevaluated oil discoveries. In addition four deep exploratory wells weredrilled onshore which resulted in one discovery (a 10 plus km extension to theGandhar field) and a generally negative evaluation of the deeper section of thebasin.

Sustainability

The incremental production of oil and gas is expected to last until post2010 for both oil and gas. The technology and operating practices introducedduring the project should have permanent benefit. This successful pilot at Balolfield is planned to be extended field-wide. The pilot at Lanwa may also provecommercial. Successful appraisal and ultimate development is probable for thetwo offshore oil discoveries plus additional prospects yet to be drilled. (Seepara 19.)

Findings and Lessons Learned

The Cambay Basin Petroleum Project was well designed, balancing key longerterm exploration and pilot EOR investments with shorter term developmentinvestments with high rates of return. The remedial work component on existingwells (work over) was particularly productive. The development cost forincremental production amounted to about US$1.40/bbl (US$10.00/ton) whichcompares very favorably with current international experience. Workovers, on theother hand, yielded incremental production estimated to cost US$0.51/bbl(US$3.70/ton). Since India, as well as the majority of borrowers in thedeveloping world, are deficient in workover capability, this is a most importantcomponent to be included in future petroleum projects where applicable.

The program of "indigenization" was adopted after appraisal of this projectwhich resulted in an abnormal number of procurement problems. Any futurepetroleum project in India should have prior agreement as to the application ofdomestic preference, with final judgement retained by the Bank as to whethervalue added by domestic intermediary companies is sufficient to qualify forpreference.

Most of the implementation delays were due to procurement problems anddelays, hence some consideration should be given to streamlining of theprocurement process. One remedial step might be the appointment of a procurementadviser, permanently assigned to the project and resident in India whoseresponsibility would be to ensure that every step in the procurement process isproperly done without delay.

To ensure that needed training is undertaken as contemplated and agreedupon, future loan documents should include an agreement (covenant) with theBorrower regarding the scope, content and implementation of the trainingprovisions with the possibility of cancellation of associated funds.

INDIACAMBAY BASIN PETROLEUM PROJECT

(LOAN 2403-IN)

PROJECT COMPLETION REPORT

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

A. Prolect Identitv

1. Name Cambay Basin Petroleum ProjectLoan Number LN 2403-INRVP Unit : South Asia RegionCountry IndiaSector EnergySubsector Petroleum

B. Backqround

2. Oil and gas exploration, development, and production in India areprincipally conducted by the state-owned entities; The Oil and Natural GasCommission (ONGC) and Oil India Ltd. (OIL) . Of these, ONGC is by far the largerand produces from fields in the Bombay Offshore, Cambay, Western Assam, andSoutheast Indian regions (listed in descending quantitative order) . OIL producesoil and gas in Eastern Assam.

3. The Bank's initial involvement in the upstream petroleum sector (excludingrefining and marketing) started with a loan of US$400 million for the initialdevelopment of the Bombay Offshore in 1981. This was followed in 1983 by theKrishna-Godavari Petroleum Exploration loan of US$165.5 million to assist inexploring for oil and gas both onshore and offshore in the Krishna and GodavariRiver delta area in southeastern Mahdya Pradesh state in SE India. Thedevelopment and pipeline transport of the South Bassein gas field offshoreBombay, South Bassein Project loan of US$222.3 million followed later in 1983.The Cambay Basin Petroleum Project is the Bank's fourth lending operation in theupstream petroleum sector in India. Subsequent to Cambay, additional loans havebeen made for petroleum development by OIL in eastern Assam and Rajasthan; theWestern Gas Project involving further development of Bassein gas (Phase II) andthe Heera oil and gas field offshore Bombay plus the first phase development ofthe onshore Gandhar gas and oil field in the Cambay Region (Gujarat state); andthe Gas Flaring Reduction Project to provide the infrastructure to utilizeassociated gas in offshore Bombay. (See Table 1., Part III.)

4. The Cambay Basin, was deemed to be in a mature stage of development and in1983 the Government of India (GOI) requested Bank assistance to attempt to stemthe declining production and to explore, in a limited way, those areas in whichthe petroleum possibilities had not yet been evaluated.

C. Prolect Oblectives and Description

5. In furtherance of GOI's objectives, the Cambay Basin Petroleum Project wasdesigned to optimize the long-term development of the petroleum resources in theProject Area; to arrest and reverse, if possible, the established decline inproduction; and to extend the productive life of the basin. This was to beaccomplished by: (1) selective exploratory seismic surveys particularly in theGulf of Cambay; (2) drilling several key exploratory wells; (3) infill drillingin selected fields; (4) development of extensive and unutilized heavy oilresources in the northern part of the basin; (5) an aggressive program torehabilitate sick wells by remedial work (work overs); and by the initiation ofseveral pilot schemes for enhanced oil recovery (EOR).

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6. The project consisted of the following:Part A: Exploration

The carrying out of a program to extend the search for petroleum into theportion of the Project Area covered by the Gulf of Cambay and its shores and thedeeper horizons (3,000 to 5,000 meters depth) in the onshore part of the ProjectArea through:

(i) seismic surveys with a coverage of about 1,750 line-km in the Gulf ofCambay and its shores; and

(ii) drilling in the onshore portion of the Project Area of about fourexploration wells of 3,000 to 5,000 meters depth each includingprovision of related technical well services, equipment andmaterials.1/

Part B: Oil and Gas Field Development and RehabilitationThe carrying out of the: (i) final development, or completion of the final

development schemes, of the following oil fields: Kalol, North Kadi, South Kadi,Sobhasan, Nawagam, Santhal, Balol and Lanwa; (ii) rehabilitation of the Cambaygas field on an experimental basis; and (iii) program for improving the wellmaintenance operations of the Commission with a view to reducing the number ofwells needing repairs in the Project Area. These will involve, among others, thefollowing:

(a) drilling of about 540 new production and water injection wells; and(b) provision of equipment, materials, cement, chemicals and technical

services related to such wells.Part C: Enhanced Oil Recovery Pilots

The carrying out of three enhanced oil recovery field pilots as follows: twothermal enhanced oil recovery pilots, the first based on the in situ combustiontechnique, in the Lanwa heavy oil field, and one chemical flood enhanced oilrecovery pilot using polymers in the Jhalora oil field.Part D: Imorovement of the Field Operations

The improvement of the Commission's oil field operations in the Project Areathrough establishment of training programs for oil field operations and theintroduction of new or appropriate technology, equipment and materials incarrying out Parts A, B and C of the Project.

D. Prolect Deficn and Orcanization

7. The project was designed to achieve the objectives over a 6-year period byproviding the necessary acquisition of equipment, materials, technical servicesand training required. The defined scope of work was left flexible to the extentthat the project could remain responsive to changing conditions and varyingresults achieved during its progress. All variations to the original projectdescription were to be mutually agreed to by the Borrower or its implementingagency (in this case the Western Region of ONGC) and the Bank.

8. The Bank Project provided a loan of US$242.5 million to support projectcosts estimated to be US$954.3 million including contingencies; amounting to25.4% of the total estimated cost and 48.9% of the foreign exchange component.Export credits of US$245 million and ONGC internal sources of US$ 466.8 millionwere allocated to cover the balance. While the Project Loan was provided to the

1/In January, 198B, Part A was amended to read as follows:"Part A: ExDloration

The carrying out of a program to extend the search for petroleum into theportion of the Project Area covered by the Gulf of Cambay and its shores andthe deeper horizons (3,000 to 5,000 meters depth) in the Project Area through:(i) seismic surveys with a coverage of about 5,200 line km in the Gulf of

Cambay and its shores; and(ii) drilling in the Project Area of about four onshore and four offshore

exploration/appraisal wells of 3,000 to 5,000 meters depth each,including provision of related technical well services, equipment andmaterials."

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Government of India, the funds were on lent to the Western Region of ONGC, theImplementing Agency.

E. Proiect Im=lementation

9. The Loan, 2403-IN was approved on March 29, 1984, signed on May 25, 1984,and became effective August 31, 1984. The project was originally scheduled tobe completed on September 30, 1990. Despite the fact that project implementationlagged significantly at the outset, approximately 95% of the original program wascompleted by the original closing date. Due to cost savings and in spite ofcancellation of US$29 million on April 7, 1988, the project scope was enlargedto include four additional exploratory wells in the offshore Gulf of Cambay inorder to evaluate prospects defined by project-supported seismic surveys.Lengthy procurement delays in obtaining satisfactory drilling equipment for thisparticularly hostile operating environment resulted in postponement of theproject closing date to October 31, 1992.

10. Other changes in the project scope during the implementation period includedthe addition of 1440 km of seismic survey in the Gulf of Cambay, the addition of302 development wells, the addition of approximately 830 workover operations, andthe cancellation of the training component.

11. Procurement problems were recurrent throughout project implementation andwere largely responsible for early delays in implementation and the need for twoone-year postponements of the closing date. The principal procurement problemsfall into three categories:

(a) "Indigenization"--While a worthwhile effort to promote domesticsuppliers and contractors, in practice it often went beyond Bankguidelines and good business practice, i.e. price preference todomestic suppliers of imported goods with little or no domestic valueadded; and award to domestic contractors without necessary equipmentrequiring inordinate time to acquire equipment (principally foreign)within their bid price, requiring waiver or extension of mobilizationperiods;

(b) When a contractor (principally domestic) failed to perform (mobilizewithin specified or extended period), entering into lengthy pricenegotiations with second lowest qualified bidder; and

(c) Persistence in using two-envelope procedures when tendered suppliesare uncomplicated.

Project implementation, particularly that performed by contractors lagged up to3 years behind schedule due mainly to procurement problems. While theprocurement process, at the request of the Bank, was decentralized from ONGCheadquarters in Dehra Dun to the Western Region management at Baroda, alltendering decisions were subject to more than 5 different layers of review. Asa result, approvals were delayed due to cumbersome procedures. These layersconsisted of committees, of which the two highest in hierarchy, convened twicea month in Delhi. The Delhi committees had no accountability for the project andtheir members were not directly associated with the project. Utilization ofthese committees reflected the Government's strong desire to control theprocurement activity. Any member of the two highest committees can ask andobtain a further review of the recommendation. The Petroleum Ministry oftenappointed new committees to review the evaluations and often returned theevaluations back down the approval chain to the project level for a new start.These interventions usually involved "indigenization". There were also frequentcomplaints from bidders, which required resolution. The long delay in securingthe drilling rig for the Gulf of Cambay exploratory well program was also an"indigenization" problem further complicated by the tender for a turnkeycontract, highly inappropriate in a difficult and untested environment.Procurement of material, while involving many problems concerning applicabilityof domestic preference required constant Bank surveillance but did not result inmajor delays.

12. Project costs proved to be substantially below appraisal estimates. Bank-supported project components were estimated at appraisal to cost US$684.4

4

million, excluding contingencies (which were not used in this project). Evenwith significant program additions, i.e. 1440 line km of offshore seismic in theGulf of Cambay, 4 exploratory wells in the Gulf of Cambay, 302 development wells,and over 800 workover jobs, the actual final cost of the Cambay Basin PetroleumProject was US$341.6 million (excluding US$0.6 million initial commitment fee).Several factors were involved in the original overestimate of costs. Theseincluded changes in work program, Rupee devaluation and excessive cost estimates.The program changes occurred because procurement delays resulted in moredevelopment and workover operations being done with ONGC equipment and less byhigher cost contractors. These savings were offset by delayed implementation anddeferred income. Since some 72% of project costs was in Rupees (versus 43%estimated at appraisal), the 67% devaluation of the Rupee over the project lifecaused a significant cost reduction. Nevertheless appraisal cost estimates forthe project were unduly high. There were extenuating circumstances for themargin of error in appraisal estimates. These were made in 1983 during a periodof rapidly escalating oil prices and associated prices for material and services.Prior to significant project implementation, these prices dipped sharply inconcert with a major break in oil prices in 1986. With the 1988 cancellation,the Bank loan accounted for 62.4* of the project investment, far above thatintended at appraisal. Suppliers credits, estimated to be about US$245.0million, were not utilized by ONGC.

13. The schedule of disbursement for Loan 2403-IN is shown on Table 3 Part IIIcomparing actual disbursements to that predicted at the time of appraisal. Ascan be seen, disbursements got off to a slow start primarily due to delays inprocurement and use of ONGC material stocks, later replaced, and quickly fellabout one year behind appraisal estimates. The lag in procurement continued togrow both as a result of continuing procurement delays as well as over estimatedprogram costs. By the original closing date, September 30, 1990, about 62% ofthe loan had been disbursed, excluding late program additions. The finaldisbursement was made on January 1, 1994 some four months after the closing ofthe loan.

14. The original and revised allocations and actual costs for Loan 2403-IN areshown in Table 5 Part III.

F. Prolect Results

15. Overall, the project met its principal objectives regarding exploration,field development, workovers, and Enhanced Oil Recovery (EOR) Pilots. Theproposed training component was deleted by ONGC with the Bank's reluctantconcurrence.

16. The physical results of the project were significant and can be brieflydescribed as follows: (See Table 6B Part III)

(a) Exploration Seismic Survey--The 3190 line-km seismic survey , thefirst survey to have been conducted in the hostile environment of theshallow offshore Gulf of Cambay (Diurnal tides of 7 to 10 meters),identified nine drillable prospects and determined the westernoffshore limits of the developing Gandhar Field, an areally largestratigraphic trap.

(b) Exploration Drilling--Eight deep exploratory wells were drilled, fouronshore and four offshore. While none of these was completed as aproducer, three discoveries were made. One onshore well provided asignificant northeast extension to the Gandhar productive belt. Latera twin well was drilled at this location and completed as a commercialproducer. Two offshore wells tested substantial quantities of oil andmay develop into commercially viable fields in the future. All thewells were designed to evaluate the less well explored deeper sectionof the Cambay Basin. The discoveries were made in the shallower,previously productive section while the results of the tests of thedeeper section were not encouraging thus seriously downgrading thepotential of deep prospects.

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(c) Development Drilling Light Oil Fields--The project supported thedrilling of 444 wells in light oil fields; Kalol, Sobhasan, N. Kadi,S. Kadi, Nagawam, Jotana, Jalhora, and Sanand. These wells resultedin an incremental production of 1.43 million tons per year in 1989/90;produced 8.68 million tons of oil during the project life and areexpected to have about 4,87 million tons remaining to be produced postproject prior to abandonment. Average lifetime production per well is30,520 tons (220,000 bbls). In addition, this component is expectedto yield 5480 million cubic meters of natural gas, 2540 million cubicmeters during the project and 2940 million cubic meters post projectprior to abandonment.

(d) Development Drilling Heavy Oil Fields--The project supported thedrilling of 398 wells in heavy oil fields; Balol, Lanwa, Santhal, andBechraji. These wells resulted in an incremental production of830,000 tons per year in 1991/92; produced 3.87 million barrels duringthe project life and estimated to have about 4.43 million tonsremaining post project prior to abandonment. Average lifetimeproduction per well is 20,850 tons of oil (137,000 bbls) . Very littlegas is produced in association with the heavy oil. The heavy oilproduction is likely to be extended by enhanced oil recovery (EOR)requiring a new investment program. {See part (f) of this para.}

(e) Well Workovers--Remedial work on existing wells was also supported bythe project. Some 1177 remedial jobs were undertaken, an average of235 per year during the period 1987/88 - 1992/93. The incrementalproduction from this investment reached 708,000 tons per year in1992/93; produced an increment of 3.2 million tons during the projectlife and is expected to yield an additional 1.6 million tons postproject. The gas increment from workovers is included with the lightoil (see part (c) this para.).

(f) Enhanced Oil Recovery (BOR) Pilot Projects--Six EOR pilot projectswere supported by the Loan. These were Jhalora Field polymerinjection (included in SAR), Lanwa heavy oil field in-situ combustion(included in SAR), Kalol Field CO2 injection (added), Sanand Fieldcaustic injection (added), Ankleshwar Field polymer injection (added),and Balol heavy oil field in-situ combustion (added) . A seventh,Lanwa Field steam pilot (included in the SAR) had not been undertakenby the closing date. The Kalol and Ankleshwar pilots failed. TheJhalora and Sanand pilots, after initial difficulties, are stillunderway with evaluation incomplete. The Lanwa combustion pilotappears to have positive results and testing continues. The Balolcombustion pilot, after overcoming a hazardous H2S problem, is deemedcommercial and is being systematically expanded toward field-wideapplication.

(g) Technical Assistance and Training--Some thirty-eight consultancy jobswere awarded under the Loan involving production engineering andworkover and EOR pilots. Although substantial funds were allocated totraining, ONGC Western Region received practically no training duringthe project implementation, due mainly to intervention by ONGCheadquarters. Despite the fact that two years were necessary tofinalize a global training contract, it was turned down at the finalapproval stage on the grounds that ONGC's central training departmentcould provide equivalent training. While judgmental, this latterassumption is questionable. The planned training would have greatlyenhanced ONGC's Western Region operation performance, not just duringthe period of the project implementation, but into the future as well.This decision was taken in spite of Bank staff recommendations but wasreluctantly accepted.

(h) S-nary--Tangible physical results accounted for a peak oil productionincrement of 2.54 million tons in 1989/90 and a peak gas productionincrement of 510 million cubic meters in 1992/93. Total projectsupported oil production is expected to amount to 26.7 million tonsand 5.5 billion cubic meters of natural gas over its productive life.Intangible benefits include a possible future development of oil andgas associated with the three discovery wells (37.5% success rate) and

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the 20-30 million tons of heavy oil that may result from successfulin-situ combustion.

17. The economic performance of the project is highly satisfactory. Thedevelopment component of the project had a net positive cash flow within thefirst year making a rate of return calculation inappropriate. Net cash flow ofUS$2231 million is anticipated for the project through 1999. This is based oninternational oil and fuel oil equivalent gas prices. The Borrower, ONGC, usingdomestic oil and gas prices, is expected to realize a 379% financial rate ofreturn from the project. (See Part III)

18. Both the economic and financial rates of return for the Cambay BasinPetroleum Project exceeded those anticipated at appraisal by a significantamount. These figures resulted in spite of 43% reduction in international oil andequivalent gas prices during the project and forecast into the future. Thereasons for this are three: (i) lower than estimated project costs; (ii) theincreased physical program; and (iii) improved results in terms of productionincrement added per development or workover well and in particular, the rapidproduction increase in the early life of the project. Due to the dynamism ofthis project, it is possible that all costs at the outset of the project were notcaptured, which may have affected the return calculations.

G. Project Sustainabilitv

19. As noted above, production from development and well workovers achievedduring the Project should impact on production at least through 2010. The lesstangible results from the exploration component, i.e. seismic surveys in the Gulfof Cambay, exploratory drilling both onshore and offshore, and the pilot EORcomponents, particularly heavy oil in-situ combustion, are expected to positivelyimpact Cambay Basin development far into the future. Geophysical and geologicaldata which have been acquired under the project will be useful well into thefuture for ongoing exploration and development drilling as well as promotion ofacreage to international oil companies. Certain procedures introduced duringproject implementation with respect to well casing and completion programs,workover methodology, and artificial lift are also expected to have lastingeffects on Cambay Basin development.

H. Bank Performance

20. Throughout the implementation of the Cambay Basin Petroleum Project, theBank made a positive contribution to the successful outcome. These included:

(a) Meaningful and well-received advice on the physical components of theproject, i.e. drilling, casing, and testing programs for exploratoryand development wells and workovers;

(b) Resolving the many thorny procurement issues, in particular thoseinvolving "indigenization"; and

(c) Providing flexibility in redirecting loan components in line withongoing project results. In the matter of flexibility, the followingadjustments to the original program were made:

(i) the Cambay gas field rehabilitation and development wasdeleted at the suggestion of ONGC after obtaining poor results atthe outset of the project;(ii) the training component was eliminated due to ONGC's desireto incorporate the component in commission-wide program (the Bankobjected but acquiesced to this.);(iii) the Lanwa EOR steam pilot was deferred post projectalthough still expected to be implemented (Bank encouragedearlier implementation);(iv) the offshore Gulf of Cambay seismic survey was expanded by1440 line km as a result of the excellent results obtained in thefirst 1750 km program;

7

(v) the addition of four offshore exploratory wells in the Gulfof Cambay to evaluate the potential structures indicated by theseismic surveys;(vi) the addition of the Kalol Field CO2 pilot and the SanandField caustic pilot and the Balol Field in-situ pilot as EORactivities;(vii) the addition of 302 development wells, 197 in light oilfields and 111 in heavy oil fields, which essentially completeddevelopment of the undeveloped reserves existing at the beginningof the project; and(viii) the expansion of workover operations from 345 jobs to 1177jobs (note that WO operations provide the highest return oninvestment of all development activities).

21. The only addition recommended by the Bank which did not materialize wis theextension of the seismic survey into the southern portion of the Gulf of 'ambaytieing data to the Bombay offshore Region. Although ONGC and the Bank had agreedto an extension of the seismic program in the Gulf of Cambay, and indeed acontractor had been chosen and negotiations were underway, the seismic work wastemporarily deferred and negotiations were terminated. ONGC later decided tocancel the program and leave the work to be done by foreign oil companies, aspart of ONGC's promotional activity, who were expected to enter into productionsharing agreements with GOI which would include seismic acquisition work as wellas drilling. This was acceptable to the Bank.

22. The principal lesson to be learned by the Bank is to improve project costestimates at the time of appraisal. While the Cambay Basin Petroleum Project wasappraised during a period of rapidly escalating petroleum prices andcommensurately escalating material and contract services costs, a more rigorousestimate of costs, considering deflationary as well as inflationary factors,should have been made. The major impacts of over-estimation of costs was thatmore work was accomplished although the Bank financed a higher proportion ofproject investment than was intended.

I. Borrower Performance

23. The Borrower, ONGC, complied with all Loan Covenants (Table 7 Part III) andwith a few exceptions, performed very well in bringing the Cambay Basin PetroleumProject to a successful conclusion. The few exceptions relate to Borrower-causedprocurement delays, the elimination of the training component, the rejection ofadditional agreed upon seismic surveys, and the long delay in implementing of theLanwa Field steam EOR pilot.

24. As mentioned above in Para 11, procurement was consistently a major causeof delay in project implementation and in less-than-optimum Bank-ONGC relations.To improve its procurement activity, ONGC requires external specializedassistance to:

(a) carry out: (i) a thorough assessment of the problems that impaired theprocurement activity and contract administration practices of not onlythe Cambay Project, but other Bank financed projects as well; and (ii)a review of existing procurement laws, regulations and procedures atthe Government level particularly the application of domesticpreference;

(b) develop suitable standard tender documents, including sector-specificspecial conditions, regulations, advertizing and shortlistingpractices, bid evaluations and contract award approval procedures, andmanuals to support the reform measures;

(c) review existing structures and procedures used by ONGC and GOI fortender review and approval with the objective of revising andshortening the process; and

8

(d) initiate the process of procurement reform, including training ofpersonnel in the application of the standard tender documents andprocedures.

J. Proiect Relationship

25. On balance, the Bank relationship with GOI and the Borrower, ONGC, was quitegood throughout the project. The frank and open discussions which took placeresulted in satisfactory solutions in spite of differences in viewpoints whichoccurred from time to time, aiding in greater understanding between the parties.This should assist in any future petroleum lending in India by the Bank.

K. Consulting Services

26. Consulting services were utilized sparingly in the execution of the project.While 38 consultancy jobs were utilized in the Cambay Basin Petroleum Project,only two were of significance. Scientific Software Inc. (SSI-USA) was used fordevelopment and workover design and evaluation and Rompetrol (Romania) for designof in-situ combustion EOR. Both consultants performed satisfactorily.

L. Environmental Considerations

27. During the course of the project, all normal precautions were taken to avoidspills and other possible contaminations of the environment. In offshoreoperations, wells were abandoned according to recognized petroleum industrystandards using cement plugs below the sea bed and cutting the casing at or nearthe sea bed. In the case of workovers, the intention was to upgrade thecondition of the wells, not only to increase the production, but also to reducethe environmental threat which would arise from leaking well heads and poorcement down the hole. During the conduct of the offshore seismic program, thework was undertaken in an environmentally benign fashion using state-of-the-artnon-explosive techniques.

28. Shortly after startup of the Balol in-situ combustion pilot, an excess ofH,S was produced creating a potentially serious environmental hazard. Thisproblem was addressed by reducing the compressed air input and effectivelyreducing the temperature in the reservoir, after which the H,S content of theproduced gas declined dramatically without affecting the rate of oil production.

M. Project Documentation and Data

29. The Loan Agreement 2403-IN was quite adequate for the project framework andprovided the flexibility required to meet the several objectives of the project.ONGC provided periodic status reports and accounts which, with normal Banksupervision reports, were sufficient to monitor the progress of the project andprovide most of the basis for this Project Completion Report. Documents in theCentral Files appear to be deficient regarding project correspondence. Due inpart to the significant Rupee devaluation during the course of the project andthe strong reliance on local contractors ("indigenization") the foreignexchange/local currency costs by year were not readily captured. Thus theforeign vs local expenditure relationships had to be estimated for the PCR.

9

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

This is an edited version of the Borrower,s submission of Part II. The originalis available in the Project Files.

30. Adequacy of factual information contained in Part III of the PCR. Theproject costs and physical results were provided by ONGC for the purpose ofpreparing Part II are factual up to March 31, 1993 with estimated datathereafter.

31. Bank's Performance. The suggestions and guidance received from Bank staffduring the project implementation , were helpful in the successful completion ofthe project and full utilization of the revised loan of US$213.5 million. Allproject components were completed except for the Cambay gas field development andrehabilitation and for the training of personnel which was clubbed with theoverall training program of ONGC.

32. The other reasons for slow loan utilization were:(a) Slump in international well material costs, charter hire rates for

deep drilling rigs and overall drilling costs;(b) Non-utilization of contingencies which were made anticipating rising

costs which in fact, fell sharply;(c) Reduction in the cost of seismic surveys since the work could be

carried out using the streamer mode as against the Teleseis modeenvisaged at appraisal which would have required more time and cost.

(d) The delay in finalizing the Gulf of Cambay drilling contract in a mosthostile operational environment, was caused by inability of lowestbidder to perform and time required for second lowest bidder to acceptthe contract;

(e) The purchase approvals from the Bank were delayed for indigenousbidders in cases of services and material due to problems affectingthe domestic price preference.

33. Borrower Performance. The Cambay Basin Petroleum Project was the firstproject of its kind affecting the Western Region of ONGC. Close monitoring andinterim review of both the physical and financial aspects were made in order totake corrective actions in time. A number of alterations were made. It wasobserved in December, 1987 that the loan utilization would fall short. Thereforethe amount of US$29 million was canceled in 1988 leaving a balance of US$213.5million.

34. The Bank made several observations during their supervision missions. Theseincluded:

(a) The need to develop an overall workover policy which resulted inincreasing the fleet of workover rigs from 50 (including 11 charterhire) to 62 (including 23 charter hire) by the close of the project;the increase being attributed to charter hire only. Artificial liftprograms should be tailored to specific needs and workover plans arebased on consultation with reservoir engineers for the repair ofindividual wells;

(b) The shortcomings of using poor quality drilling mud and wellcementation procedures were pointed out by the Bank staff. ONGC'sWestern Region called on ONGC's Institute of Drilling Technology (IDT)to assist in improving the quality of drilling fluids and primarycementation;

(c) That ONGC should review its targets of meterage rate yardsticks inlight of quality of work. ONGC has attempted to achieve worldstandards of both hole conditions and penetration rates;

(d) The development of the Kalol field and the Balol/Lanwa heavy oilfields was delayed due to retendering and subsequent mobilization ofcharter hire rigs;

(e) Retendering of bids, particularly those made by domestic suppliers,was somewhat common due to : (i) rejection of initial bids on

10

technical grounds; (ii) rejection of bids on commercial grounds, i.e.late submission or lack of bid bond; (iii) foreign exchange crunchapplicable to domestic bidders when imported goods or services wereinvolved; (iv) slow clarification of bid conditions by generallyinexperienced bidders; and (v) slow mobilization and/or delivery ofequipment, material, and services.

35. Borrower/Bank Relationship. The Bank introduced a project concept which wassomewhat new to the ONGC Western Region. Progress reports and recordsmaintenance were kept to the satisfaction of the Bank and to the benefit of ONGC.All Bank mission visits were successful. There was a meaningful exchange ofideas and suggestions; many of which were implemented. Most problems,particularly regarding procurement were cleared by Bank missions on-the-spotafter detailed discussions with ONGC management.

36. Co-finance. No cofinancing was involved in this project.

12

PART III

STATISTICAL INFORMATION

1. Related Bank Loans

LOAN TITLE PURPOSE YEAR OF STATUSAPPROV.

Bombay High Offshsore Development of Bombay High 1981 CompletetDevelopment FieldLN 1925-IN

Krishna-Godavari Exploration Exploration and Appraisal, 1983 CompletedLN 2205-IN onshore & Offshore, Krishna-

Godavari

South Bassein Gas Development Development of S. Bassein 1983 CompletedLN 2241-IN Field and Gas Pipeline.

Oil India Petroleum Development & Exploration, 1987 ActiveLN 2795-IN Aranchel Pradesh, Assam,

Rajaschan.

Western Gas Development Gas field Development in 1988 Completed

LN 2904-IN Bombay Offshore and OnshoreCambay Basin.

Petroleum Transport Onshore Gas Trunkline 1989 Canceled in part

LN 3044-IN

Gas Flaring Reduction Gas Handling and Pipelines, 1992 ActiveLN 3364-IN Bombay Offshore.

2. Prolect Timetable

ITEM DATE DATE DATEPLANNED REvISED ACTUAL

Identification

Preparation 03/83 03/83

Pre-Aopraisal Mission 06/83 07/83

Appraisal Mission 08/83 10/83

Loan Negotiations 03/84 02/84

Board Approval 04/84 03/84

Loan Signature 05/84

Loan Effectiveness 08/84

Loan Closing 09/90 10/92

12

3. Loan Disbursements

Cumulative Estimaated and Actual DisbursementsUSS millions

FY 84 Fy 85 rv 8e - Y87 FrYs ry89 FY90 FY 91 FY92 CY gSAODcWISrI 0.6 36.4 97 169.6 206.1 230.4 242.5 242.5 242.5 242.5ACtUAl 0 08 '9.9 56 946 137.6 '81.1 204.5 213.1 242.5

Actua. s aof Egt,ratg 00 1 65 20.52 32.98 1600 59.72 as68 84.45 87.80 '00.00

DISBURSEMENT PROFILE

$242.5 Million250 '' '~

Z z 200 1j2; 150 1 -- _ -- * Appraisal I

1001 _ Actual

50 51

co m w co 1% 0 0 r

U. U. U. U_. U . U U

13

4. Pro iect Imalementation

Prolect Cczoonents Aooralsal Estimate Actual

Start Development Drilling 2nd half 1984 ist half 1984

COmplete Development Drilling End 1990 end 1990-

Start Exploration Drilling Late 1995 3rd quarter 1985

Complete Exploration Drilling Early 1988 late 1992

Drilling Contractor & Drilling Services Procured Start 1995 End 1987

Procurement of most of new Drilling & Workover Equipment 3rd Quarter 1984 End 1984

New Drilling and Workover Equipment to be fully Start 1986 End 1986Operational

S. Project CoBta and Financina

A. Pro1ect Costa

(US$ millioni

tTDIM Aooraisal Estimate Actual

Local Foreign exch Total Locale Foreign exch- 7alcosts Costs (USSM) costs Colt. (SMM

Exploration 19.3 61.7 81.0 15.4 49.5 64.9

Development & Production 269.6 319.2 599.8 224.2 42.5 266.7

Enhanced Oil Recovery 2.6 5.0 7.6 6.0 2.90 8.9

Technical Assistance & 2.0 5.0 7.0 0.2 0.9 1.1Training

Front-end Fee 0 0.6 0.6 0 0.6 0.6

Base Cost 293.50 391.50 695.00 245.80 96.40 342.20

Phy. Contingency 39.7 59.4 98.1

Price 75.3 9S.9 171.2

TOTAL 408.50 o54S.0 954.30 245.80 96.40 342.20

'Allocation of coSts are approximate.

14

B. Prolect Financing

So9ncs APPRIISAL A49DtC 1ZYAL O0oG

Wor..-OriliTa 6 .ntnn X0 oS59 2 13 0

2NG n !qojal. 1 In.ro. I I O :5 :27

V 3.4. -4 y Ia ". soiI 5040 24 I :0

* Con.lStnp @*.9v * ~rafnfl.r s * 0 *

S Prontn ct ' Resul

s ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Siae Throughe 1999, .

4 anl lIL Ol i itd 29 719 O

GTC1L 23IS 2424 292.9 0 213.5C

CotflafTinoa O. 24s 0 1 0

ONDC 11oe.,1 *04. 129 .24.7

NG300 orl0TnWl - 1

GaL M5M 30 I'1 00 92 70ncUudornq *ur.-caiflWSy borr.nnq and .spp 44.r.@Cr.025

6 . Proi ect Results

A.Direct Ben-fit.

Estimated Throueh 1999

Lt Oil Million tons 7 29 16.07

Deavy Oil " eon. 7 19 6 97

Total Oil tons 14.48 23.04

Gas MM e31cm 1041 3 4700

B. Phvrnical Work

D.cr±ptien Appraimal. Actual Pertenteqe£utimace 01fftarence

Sei_±c 14.zx-Iai 1750 31110 82%

tLploratory Wall. a 10lOO

DaY v.11 Lt. 147 444 80%oil & Ga.

DaY v.113 Heavy 257 399 39%0i1.

work Overe 345 1177 240%

i5

C. Economic Performance

Economic Performance of the Development Component

Capital costs in OoeratinqCosts in USSmill Revenue in Net Cash FlowUSSaiif uSSmill USSmi1i

Year

1983/84 23.17 0.29 50.28 26.83

1984/85 32.36 2 09 151.62 117.17

1985/86 18.26 3,50 144.67 122.91

1986/87 21.42 5.08 167.51 141.01

1987188 37.13 705 208.88 164.69

1988/89 17.41 7 72 283.04 257.92

1989/90 11.14 10.65 279.66 257.85

1990/91 9 34 9 72 225.37 206.30

1991/92 9 74 210.34 200.60

;992/93 9 74 180.14 170.40

1993/94 9 74 146.87 137.13

1994/95 9 74 123.03 113.30

1995/96 9 74 106.36 96.62

1996/97 9.74 92.89 83.15

1997/98 9.74 82.00 72.26

1998/99 9 74 73 20 63.46

TOTAL 124.02 2.525.86 2.231.60Rate of return: Not applicable

NOTES

1. All values are in constant 1983/84 US S. All prices and indices in calenoar years were adjusted to correlate with the Indian fiscalyear from April 1 to March 31.

2. Capital Costs result from Bank staff estimates of the breakdown of foreign and local costs in US S based on data from ONGC. whichthey usea for their econamic analysis Foreign costs were aeflated to constant US S based on the unit value index in dollar terms ofmanufactures exported from the G-5 countries (France. Germany, the United Kingdom and the United States). known as the MIJ Index.Local costs were deflated based the Indian wholesale Drice index. supplied by the Country Programs Division. Local costs were alsoadjustea by the standard coversion factor (SCF) of 0 8 usea to equate domestic ana foreign values of gooos and services..

3 Operating Costs are based on ONGC's reporting of acutual past operating costs and their projections for the future. They weredeflated by the Indian WPI to arrive at a value in constant prices: converted to US S using the excnange rates in Table 1: and madeconaraDle to foreign values by applying the SCF of 0.8 .

4 Revenues are based on the incremental oil and gas production attributable to the proJect at constant international prices of theunits produced. Both actual and orojected internationai oil prices are based on FOB prices per barrel of crude oil quoted in variousissues of the Bank's Primary Comimooty Price Forecasts. The price in barrels was converted to tonnes using the conversion factor of7.0 barrels per tonne. ine landed cost to tne reTinery in India was based on a constant figure of USS 12 per tonne for transport. Gasrices are expressed in the equivalent price of fuel oil which would be required in the absence of the increxental gas production. The

basis for the fuel oil equivalent price was the international price landed used for crude oil adjusted to reflect actual and proJectedvalues for fuel oil as shown in Table 2. Fuel oil equivalent prices in tonnes were converted to cubic meters using the converslonfactor of .936 tonnes of fuel oil per thousand cubic meters.

CAMBAY BASIN PETROLEUM PROJECTfINANCIAL INTERNAL R4 TE OF RETURN

Gas . . Gas Price . Gas Rev .Rev Cap Cap Oper Cash Flow

OlProd .Oil Price Oll Rev In mm t RvInY ear in mm t Sales in . in Rs/mm in mm Costs in Rs/$US Costs in Costs in for IRR mm

Yer In mm t In Rs/t mm RsmmRmm cm cm Rs $mm mm Rs mm Rs Rs

1984/85 0.22 34 957.5 330.9 210.65 11.25 221.90 30.7 11.9 365.33 4.5 -147.93

1985/86 0.99 104 957.5 340.9 947.925 35.45 983.38 44.9 12.2 547.78 35.3 400.30

1986187 1.34 144 957.5 521.62 1283.05 75.11 1358.16 16 12.8 204.8 65.6 1087.76

1987/88 1.67 192 957.5 1400 1599.025 268.80 1867.83 26 13 338 106.4 1423.43

1988189 2.22 232 957.5 1400 2125.65 324.80 2450.45 45.6 14.5 661.2 175.1 1614.15

1989/90 2.54 240 957.5 1400 2432.05 336.00 2768.05 26 16.7 434.2 240.1 2093.75

1990191 2 51 296 957.5 1400 2403.325 414.40 2817.73 18 17.9 322.2 398 2097.53

kD 1991/92 2.22 384 957.5 1425 2125.65 547.20 2672.85 17 24.5 416.5 565.8 1690.55

1992/93 2.06 408 1323 1500 2725.38 612.00 3337.38 605.4 2731.98

1993/94 1.71 368 1506 1500 2575.26 552.00 3127.26 605.4 2521.86

1994/95 1.4 328 1506 1500 2108.4 492.00 2600.40 605.4 1995.00

1995/96 1.15 280 1506 1500 1731.9 420.00 2151.90 605.4 1546.50

1996/97 0.96 240 1506 1500 1445.76 360.00 1805.76 605.4 1200.36

1997/98 0.81 200 1506 1500 1219.86 300.00 1519.86 605.4 914.46

1998/99 0.68 176 1506 1500 1024.08 264.00 1288.08 605.4 682.68

L.E 1999/00 0.58 136 1506 1500 873.48 204.00 1077.48 605.4 472.08

1. All values are in current Rs.

2. Capital Costs are Bank staff estimates based on ONGC data.

3. Operaling Costs are based on ONGC's actual costs and projections

it 4 Revenues are based on incremental oil and gas production

resulting from the project and domestic prices of oil and gas.

FINANCIAL IRR 379%

ONGC WESrERN REGION OIL PRODUCTION-MILUON rONS PER YEAR

Year 78179 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93

Total . _ - - - --

Westrn wo 4.25 3.80 3.83 3.40 3.18 3.57 3.69 3.33 3.21 3.27 3.17 3.77 3.85 3.80 3.73

__~~ ~ ~ __I_ _ _ _ _ _ ._ ._ __Region w /o __ _ _ _ _ _ _ _ _I _ _ _ _ __ _ _ _ __ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _

Casm Basi. 0.22 0.99 1.34 1.67 2.22 2.54 2.51 2.20 2.06

ymieCT B"fits

Western

Region Total 4.25 3.80 3.83 3.40 3.18 3.57 3.91 4.32 4.55 4.94 5.39 6.31 6.36 6.00 5.79

Production

. ~~ ~ ~ ~ ~__ _ I _.

WESTERN REGION OIL PRODUCTION IINCL. W. GAS)

7 oo

0.0I--z 5.00 _ - -__- ------ ----n-=-----

o c

Z5.00 ;

'4.00 - --* -- *_ Total Western Region wopioject

O 3.00 -_ - Western Region Total Production

0 2.00 _

0 t_00 W. Gas Proj. Benefits

~1.00-

0.00 .) 0 N N It 0 to N W U 0 _ N N

t,- g ,! E2 se i0 se _le le le m- m-

oo m N (0 It to t0 (0 0 m c 0

YEARS

18

F. Studies

Studies Purpose as Defined Status Impact of Studyat Appraisal

1. Pilot Studies of Complete Very Successfulin-situ Combustion

for EOR

2. Polymer Pilot Study Not Completed Mechanical Problems--Stillfor EOR under Treatment

3. overall Engineering Completed Generally Successful.Studies Results have made Production

from some Fields Possible.

19

7. Status of Covenants

Loan Agreement Text of Covenant StatusSection

PA 3.03 The Commission shall take out and maintain with responsibleinsurers, or make other provisions satisfactory to the BanLkfor, insurance against such risks and in such amounts as Compliedshall be consistent with appropriate practice.

PA 4.01 The Comesission shall maintain records adequate to reflect inaccordance with consistently maintained appropriate Compliedaccounting practices its operationa and financial condition.

PA 4.02 The Commission shall ti) furnish to the Bank as soon as Not complied with 4.02(i), butavailable. but in any case not later than forty-five days requirement has been changed under Gasafter the end of the first and the second half of each fiscal Flaring Reduction Project.year, its unaudited semi-annual financial statements for suchperiod, (ii) have its accounts and financial statements(balance sheets, statements of income and expenses andrelated statements) for each fiscal year audited, inaccordance with appropriate auditing principles consistentlyapplied, by independent auditors acceptable to the Bank;(iii) furnish to the Bank as soon as available, but in anycase not later than twelve months after the end of each suchyear. (A) certified copies of its financial statements forsuch year as so audited, and (B) the report of such audit by Compliedsaid auditors, of such scope and in such detail as the Bankhall have reasonable requested; and (iv) furnish to the Bank

such other information concerning the accounts and financialstatementa of the Cosmession and the audit thereof as theBank shall from time to time reasonably request.

PA 4.03 (a) The Comssion shall carry out and furnish to theBorrower not later than December 31, in each year, a reportpresenting economic and financial evaluation of the Projectand of any other ma)or development undertaken after the dateof this Agreement and analysis of the financial situation andprospects of the Coesission as a whole, for the purpose ofproviding information to be considered by the Borrower in Compliedcarrying out review of the price of oil and gas produced bythe Commission. The said report shall indicate, inter alia,the price level required to permit the Commsission, underconditions of efficient operation, to achieve a net of taxesdiscounted cash flow for the Project and for any such majordevelopment of not less than 15%. The said report shall alsocontain information on the Comission's rate of return oninvested capital, debt service coverage and working capitalposition and the availability of funds to the Commission tofinance its proposed capital investments.

(b) For purposes of this Section, the term -majordevelopment' means the development of an oil and gas fieldhaving proven recoverable reserve of a 100 million barrels ofoil or more, or of 15 billion cubic meters of gas or more.

LA 4.02 The Borrower shall f rom time to time on the basmi, inter Natural gas pricing has been subiectalia, of the report furnished to it by the Commisision to a report (known as the Kelkarpursuant to Section 4.03 of the Project Agreement, carry out report) which sets pricing mechani_m.a review of the price of crude oil and natural gas to theCommission, and on the basis of such review, shall set suchprices at the level needed to enable the Commission, underconditions of efficient operation, to meot its operatingexpenses and earn a return after taxes on its assets employed Compliedin operations which, together with the amount allocated fordepreciation charges for such year, permits the Commission tomeet its debt service requirements, maintain adequate workingcapital and finance a substantial portion of its proposedcaOital investments.

LA 4.03 The Borrower shall: (i) by March 31, 198S, undertake a study Compliedon the utilization of heavy oil to be produced from theProject Area; (li) exchange views with the Bank on thefindings of said study; and (iii) take necesary steps toensure the utilization or sale of such heavy oil

Agreed Minutes with respect to Section 4.04 of the Project Agreemnt, thePara 15 financial projections of the ONOC for the second half of the

present decade were reviewed. The delegations agreed that CompliedONGC shall monitor its financial position with a view totaking appropriate remedial measures if the ratio of ti) thecurrent assets to current liabilities goes below 1.3; and/or(ii) the aggregate principal amaunt of the debts incurred andoutstanding to the equity goes above 1.5 and/or (iii) the netrevenues of the Commission for a year to the debt service inthat year goes below 1.5.

20

8. Use of Bank Resources

A. Staff Inputs(Staff-weeks)

Activi FY3 FY84 rY8e r 86 rn87 FrYl rFY9 rY5o Ml mY rFY3 rr 94 TOTAL

Preparation 10.0 38.5 3. 50

Appraisal 37.5 37.50

Negotiations 4.6 4.60

Supervision 0.1 4.2 25.5 17.2 14.4 13.3 12.1 8.7 9.4 5.4 2.4 112.60

PCR 0.1 0.1 6.0 6.20

TOTAL 10.10 84.80 25.50 17.20 14.50 13.30 12.10 8.70 9.50 5.40 2.40 6.00 199.40

B. Misgiona

Stage of Project Cycle Month/ No. of Days in Specialists Perform.Year Persons Field Rersented Ratinc

Preparation 03/83 4 7 FA, PE, DE, P

Pre-Appraisal Mission 07/83 6 21 2G, PE, 2C, FA

Appraisal Mission 10/33 6 13 FA, G, Gp, PE.Z,C

Supervision Missions 05/84 S 14 PE, G, Gp, E, C 1

09/84 4 10 PE, Gp, FA, C 1

05/IS 3 9 PE, Gp, G 2

08/85 1 5 PE 2

09/8S 2 11 PE,G 2

12/8S 1 3 PE, G 3

11/86 1 7 PE 3

06/87 4 5 PE, Gp, G P 2

07/87 1 4 PE

12/87 3 4 PE, C. P 3

07/88 3 7 EP, G, C 3

12/88 2 27 PE, G 2

0a/a9 2 PE, G 2

03/90 4 14 PE, FA, G, P 2

09/90 1 25 PE 2

03/91 1 3 G 2

10/91 2 12 PE, G 2

Expertise Codes: G-Geologist; Gp-Geophysiciste PE-Petroleum Engineer; DE-Drilling Engineer: E-Economist, FA-PinancialAnalyst; P-Procurement Specialist; C-Consultant