ONGC wants to reduce cycle from discovery to production, says chairman

State-owned company will hand over 49 oil fields to private players and is discussing listing its foreign subsidiary, says Shashi Shanker.

Global crude oil prices have been volatile this year. Shashi Shanker, chairman and managing director of state-owned Oil and Natural Gas Corporation, told Business Standard in an interview the country’s largest oil producer will be realising lower value than last year despite the recent spurt in global prices. Edited excerpts of the interview with Twesh Mishra and Jyoti Mukul:

How does the recent increase in oil prices impact ONGC since your prices are also linked to the international market?

From a company perspective, higher prices mean better for us. But from an India perspective, because we are an import-dependent economy, lower crude oil prices are better because we import around 85 per cent of our crude oil. During the Covid-19 pandemic lockdowns, crude oil prices had gone into negative territory for a day, but were mostly maintained in the $20-$30 a barrel range. We had taken a number of initiatives on cost reduction.

The other important aspect is that services cost also comes down at that time and to some extent, that also helps the company. So, we have been able to very efficiently manage our operations. Other oil majors had reported a huge loss, but we are able to maintain, at least we were PAT (profit after tax) positive. We had to book some impairment losses as well, but we have been able to manage the situation well.

How will the year be for ONGC on an annualised basis?

From April 1 to date, our average realisation is not what it was during last year. The crude oil prices have just started picking up. We will be positive (close the year with a net profit) but may be not to the earlier year levels. Oil prices were and are expected to remain range bound for quite some time. The price will be in the $50-$60 range. That is okay for us because it helps oil producers and consumers.

How do you react to the decision of the OPEC+ to continue production cuts?

Petroleum Minister Dharmendra Pradhan has made it clear that the price should not be too low or high. It should be reasonable and from that point of view, we don’t advocate very high prices as well because that brings in a lot of instability in the market. Today ONGC is an integrated company. So, if upstream starts making (unreasonable) profit, then the downstream company has to bear the brunt. That is one of the reasons why today if you look at our portfolio, it is pretty balanced. It is almost 1:1:1 across production, marketing and refining.

Do you call for more price stability?

Volatility is not good for any business; that brings in a lot of uncertainty in decision making also. If you are able to have a reasonably good idea about raw material and product costs, then that brings in stability into the business.

How has ONGC made a cost saving when crude oil prices fell? Were your projects affected by the crude oil price volatility?

We have one deep water drill ship operating with us. This has been with us since 2010. We had contracted that rig for $585,000 per day. It was through a competitive bidding process. Today the same rig is operating with us at around $ 120,000 per day. The crude oil price was around $ 150 per barrel when the initial contract was signed.

Our capital expenditure has been steady and rising over the years. We believe in the cyclical nature of business and that we have relatively healthy acreages. In fact, we have been lucky when it comes to awarding contracts during this period. In KG DWN 98/2, we have been able to award contracts at well below the budgeted amounts, sometimes even 50 per cent less than what estimated.

What is the current status of ONGC’s asset monetisation and are you looking at more assets?

Looking at the size of our company, we thought it is best to invest in larger fields and in finding something new. With this objective, we thought of outsourcing these 49 fields to private players. Contracts have been signed for fields that found takers and we are in the process of handing over the assets.

We want to reduce the cycle from discovery to production period. That’s why there is very close monitoring in the new acreages being acquired. So, we are making sure we execute the project within the committed time period. Likewise, if any discovery is made, we immediately constitute a committee that sits together to prepare a feasibility report and development programme for the project.

Would you be looking at the INVIT route for your infrastructure for raising money?

Most of the infrastructure we have is for captive usage. An oil and gas pipeline running (sic) from an offshore field to the shore, so that is primarily for captive usage. But for the discovered small field round, voluntarily we have provided all infrastructure, in and around that field. We get a very insignificant rental from them, it’s almost for free. As a national company it is our responsibility to encourage more players to get into these fields. Niti Aayog and the government have looked into all of ONGC’s infrastructure and found that none of our infrastructure has been shortlisted to be put under the INVIT model.

How does creating a separate natural gas subsidiary help?

It will be more focused on the gas business. This is because marketing will be big. The government has a plan to increase gas consumption so there will be a huge opportunity for everyone. It has allowed selling gas to affiliates, so this company can be used for selling to anybody for that matter, including our affiliates such as HPCL, MRPL and other petrochemical plants. Going forward we might get into other gas verticals such as city gas distribution, liquified natural gas, hydrogen and others. The Petroleum Ministry is very conscious of the fact that the price we are getting for domestically produced natural gas is not good enough to even meet our expenses. We are losing heavily, so they do appreciate this point. And I am sure some positive development will take place on this front.

Would you be looking at the listing of ONGC Videsh Limited (OVL)?

That is under discussion. We have some assets in OVL which are in an advanced stage of development, such as in Mozambique or Columbia. We feel that probably this is not the right time, when those assets come under production, that is time we would be able to realise better value for this. That would be the opportune time for listing.

What is your capital expenditure plan for next year?

It will be higher than the present level this year. We have almost met the around Rs 30,000 crore capex requirement for this year. The slight shortfall is because equipment had to come from the UK for some of our projects but that there was a lockdown so the project implementation was delayed, but now it is back on track.

Any plans for HPCL?

The merger with MRPL is under process and then we will go as per a plan in place to reorganise our portfolio.