ONGC is undervalued: RS Sharma

RS Sharma has been the "caretaker" chairman of the country's largest exploration and production company, Oil and Natural Gas Corporation (ONGC), for the last 13 months.

Barely a week after being confirmed as the chairman and managing director, he spoke about his success in the interim role and his plans to "consolidate, integrate and diversify" the operations of the company in an informal chat with reporters. Here is what he had to say: On the undervaluation of ONGC vis-a-vis peer: ONGC is the most profitable company in the country, with net profit of Rs 15,543 crore reported last year.

It is the largest exploration and production company in India. However, the company is highly undervalued. Our stock has a price-to-earnings ratio of 12 compared with the Sensex's 21.

ONGC's recoverable reserves are around 7.8 million barrels of oil equivalent, and our market capitalisation is around $45 billion. This values the company at around $6 a barrel of oil equivalent. Cairn India, on the other hand, is valued at around $11.

On consolidation, integration and diversification: There are three priority areas, which include consolidation of the exploration and production business, integration and diversification.

In our core exploration business, we are keen on expanding our existing oil and gas reserves. Our reserve replacement ratio last year was 1.35, which is our highest in the last 11 years. We aim to keep this ratio above 1.

The reserves accretion during the first quarter has already exceeded the target for the whole year. On the production front, our current rate of oil recovery from the existing 115 producing fields is 28 per cent. We aim to raise this to 40 per cent by 2020. There are also plans to integrate our upstream and downstream businesses.

We plan to use in-house feedstock such as gas for our Tripura power plant and aromatic by-products from MRPL for an aromatics plant at Mangalore.

Diversification into non-conventional and alternative sources of energy, is also on the agenda. Wind power projects are also coming up, where the power generated will be used for captive purposes.

On gas production from the Krishna-Godavari basin: The development plan for our K-G basin gas will be ready by the end of 2008. The production should start by around 2012-2013.

We are hoping the reserves in both the K-G and the Mahanadi basins will be much bigger than the currently disclosed figures as the acreages are huge. We have so far drilled only one well in both the areas.

On the problem of rig-shortage: We have 28-29 rigs deployed across the country. The rig count will go up by 4-5 till 2011. The situation for jack-up rigs used in shallow water, which command a price of $147,000-149,000 a day, is likely to ease by 2009.

The prices are also softening. The new built-up rigs, due for 2009 pre-monsoon delivery (by April), are quoting at $133,000-139,000 a day. The shortage of deep water rigs is however not easing.

On the increasing burden of subsidy pay-outs: I will be taking up the issue with the government again. I am working on it. The subsidy-sharing mechanism should be transparent and predictable.