As the country’s biggest crude oil producer, Oil and Natural Gas Corporation (ONGC) has recently seen some recovery in its share price that had plummeted to Rs 227 a share on July 15. While hailing the slight easing of global crude oil price as a positive, its chairman and managing director A K Hazarika tells Ajay Modi and Jyoti Mukul the company will start commissioning some of its new discoveries from 2013-14. Edited excerpts:
How do you view the movement in crude oil prices after the recent developments in the US? As an oil producer, does the fall in prices worry you?
Moderation in crude oil price is a good sign. We produce 99 per cent oil from pre-Nelp (new exploration licensing policy) and nominated blocks where we have to bear subsidy. Whatever is the crude price, our retention price remains low since we have to give discounts to refiners as part of the subsidy sharing mechanism.
Against a gross price of $121.29 in the first quarter, our net realisation was just $48. If the crude price goes up, we have to give higher subsidy to oil marketers. Hence, if it goes down, it is good news for us since the total under-recoveries of the oil marketing companies (OMCs) will go down and our subsidy burden will reduce correspondingly.
Do you think prices will go down in the next few weeks or months?
It is difficult to predict since it will depend on global factors and the way international markets behave. The fall of investor sentiment in the US will have a definite impact but how long it continues is difficult to say. I believe oil price will hover in the range of $95-100 a barrel, but it will not go down drastically.
Why?
There is no formula to arrive at a price. We can assume we will not have a 2008-like situation where speculative elements prevailed upon fundamentals. Though speculation exists this time, too, the fundamentals are stronger.
Whenever dollar weakens and stock markets do not perform well, investors turn to commodities. Do you foresee that happening and taking oil prices to artificial highs?
It depends upon how this market reacts. The crude oil price will depend on demand and supply. It will be impacted primarily due to changes in demand.
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Do you see better prospects for OMCs and upstream companies?
They are comfortable with a price of $60 per barrel where they may not be required to give any subsidy. Above that, they will have a burden and we will have to bear one-third. It will depend on the government policy.
ONGC shared a huge subsidy burden of Rs 12,000 crore in the first quarter. How does the second quarter look?
The effect of the government’s measures in terms of price rise and duty changes will be seen in the second quarter. Under-recoveries of OMCs will be much lower in the second quarter, and if the government maintains the same formula of upstream sharing of one-third, our retention price will be higher and profitability will be better.
Will the cut in customs duty on crude from five per cent to zero impact ONGC?
We used to get an extra realisation of 2.5 per cent on domestic crude due to the five per cent customs on imported crude. This benefit has lapsed but this does not impact us since it gets compensated due to cut in overall subsidy.
What is the new schedule for the follow-on public offer?
The issue is on. The government has asked us to be ready with our accounts. The government needs to decide dates.
Do you think the response will be good, given the current economic conditions?
The ONGC stock is doing well and has not gone down drastically. So far as market sentiment is considered, it changes fast. The market will take a call based on fundamentals. So far as the money to be raised is concerned, the government will do its calculations. It is for the government to decide if it is comfortable to go for an FPO at the current price of ONGC.
Yes, given the current stock price, the Rs 14,000 crore that was initially estimated by the government cannot be raised.
How much has ONGC paid in royalty on Cairn India’s Barmer production? What impact will the government decision on Cairn-Vedanta deal have on ONGC?
ONGC has so far paid Rs 1,300 crore, of which, Rs 645 crore was paid last year. We will continue to pay royalty as licensee, but it will now become cost-recoverable. This means profit for all stakeholders, including Cairn and the government, will get reduced. After Cairn India accepts all government conditions, they will have to approach us for our nod. ONGC will then take a view.
ONGC has not been growing in its core business of oil and gas production. Do you expect any field to go onstream this year?
No new fields will go onstream this year. Work is on in various fields and is at different stages of progress. Some are at the drilling stage and will start coming from 2013-14 onwards.
Is ONGC planning to outsource its CBM (coal-bed methane) blocks? Would you call for bids?
We want a private partner, because as a government company, we have certain limitations. We need a partner who can handle local issues and ensure fast progress. Discussions are going on. We do not require to call for bids. In CBM blocks, we can take partners but government approval will be required. We want to swiftly develop Bokaro, Raniganj, north Karanpura and Jharia blocks. We will look for partners in all these blocks. Immediately, we want to develop Bokaro and Jharia. There are customers who are ready in these areas to put up their own pipelines to take gas once production commences.
Which are the alternative energy sources that ONGC is planning to foray into?
We have created an energy centre which is working on alternative sources of energy. One of the projects is nuclear for which we have signed with Nuclear Power Corporation of India Ltd. We will try to drill some wells in our production areas. We went through old logs to study formations and came across some radioactivity in the Krishna-Godavari and Cauvery basins. We have to conduct pilot projects. The centre is also working on solar, LED and hydrogen cell. We are also doing a pilot project on bio-methane from lignite.
Would you look at shale gas assets overseas?
No. We are trying to find shale gas resources in India.