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Balaji C. Mouli

Mr R.S. Sharma, Director Finance, ONGC

NEW DELHI, April 8

LAST week, ONGC declared a 67 per cent rise in net profit which crossed the Rs 10,000-crore mark for 2002-03 on the back of deregulation and high global crude prices during the year.

During the 2001-02 fiscal, it was remunerated $16 per barrel for the crude it sold. In 2002-03, the company netted an average price of around $27.5 per barrel.

The next round of bounty hunting will be on the operations front. During the year, it will be combing the offshore deep-water regions of highly prospective areas like the Krishna Godavari basin.

Not surprisingly, the capex programme in the domestic arena involving drilling and survey has been stepped up to Rs 10,308 crore from the previous year's figure of Rs 4,800 crore.

Speaking to Business Line, Mr R.S. Sharma, Director (Finance), elaborated on the company's financial health and its plans for the future.

Have the oil refiners paid ONGC full market prices for the crude purchased by them in 2002-03? If not, how much is due from them?

We have received nearly the entire amount from the refiners. While IOC paid us around Rs 2,000 crore over the ad hoc $21 per barrel price set at the beginning of the year, BPCL paid up Rs 1,600 crore and HPCL Rs 550 crore.

In the case of BPCL and HPCL, although the crude supply agreements have not been finalised, the companies paid up on March 31 most of the dues. We expect to net another Rs 50-odd crore once the agreements are signed.

How much has ONGC lost on the sale of LPG and kerosene to domestic refiners due to price regulation?

The refiners have frozen the prices of LPG since October and that of kerosene since December. We have, till date, lost Rs 150-200 crore due to non-realisation of global market prices.

What would have been the gains for ONGC had gas prices been deregulated?

Whether you take fuel oil parity or cost of alternate fuel or regassified LNG, the price is around $3.5 per million British thermal units (mmbtu). We are currently realising $1.1 per mmbtu. Hence, we have lost Rs 10,000 crore this year.

My concern is that everybody comments that we are making a windfall gain. I agree. However, I am not a happy man paying Rs 5,600 crore as tax to the Government.

Moreover, this year has been abnormal for crude oil prices. What happens when crude oil comes to their normal levels? The last 20 years' historical data indicates the price could be between $19-21 per barrel.

Not surprisingly, the Government is currently not giving us a fair deal on gas prices thinking that ONGC is making a killing on crude prices.

What is ONGC's cost of crude finding and lifting?

Our finding cost is higher than the international average. This is not because of inefficiency. It is linked to resource accretion. If we have major finds, the finding cost will come down sharply.

ONGC's finding cost, averaged of the last five years, is $1.43 per barrel compared to the international average of $1.05 per barrel. In the case of BP it is $0.83, $1.01 for Exxon, $1 for Royal Dutch/ Shell, and $1.35 for Chevron.

Our lifting cost (operating cost) is $3.02 per barrel. The average of the four exploration majors is $4.28 per barrel. ONGC's current average cost of production of oil is $8 per barrel. Added to this is the cess at $5 per barrel and royalty of $2.5 per barrel.

Our economic valuations and planning are based on realising a crude price of $18 per barrel. So long as the international price stays above this level, our investment plans will stay on course.

What does ONGC earn on its short-term investments and are you satisfied?

ONGC currently has bank investments to the tune of Rs 3,500 crore which earn around four per cent post-tax return. This is definitely a drag on the company.

The bank deposit is largely due the fact that the capital-intensive deep sea-drilling programme did not take off in 2002-03. Hence, this year, we have a higher capital expenditure outlay to fund the deep sea-drilling activities.

As against a capex of Rs 4,800 crore during 2002-03, this fiscal the outlay has been pegged at Rs 10,308 crore. On the overseas front, the capex has been reduced from Rs 6,000 crore in 2002-03 to Rs 2,900 crore in 2003-04.

How does ONGC plan to improve the financial performance of MRPL, the recent acquisition in the refining sector?

We plan to refinance MRPL's loans once we settle into the project and the lenders are comfortable with the 9.64 million tonne refinery's financial performance.

Currently, the cost of debt is in the region of nine per cent, which we hope to bring down to 7-7.5 per cent on the strength of ONGC's balance sheet. The existing lenders include State Bank of India, IDBI, IFCI, Bank of Baroda and Punjab National Bank.

The Ministry of Disinvestment has mooted sale of two per cent of HPCL's 17 per cent equity in MRPL prior to its privatisation. Would ONGC like to pick up this equity?

Our end game is to merge MRPL with ONGC. Picking up HPCL's equity would be a step in that direction.

IOC has mooted a proposal to the Government wherein ONGC Videsh Ltd, the overseas arm of ONGC, bids jointly with IOC and GAIL for all future acquisitions of overseas oil and gas properties?

I am in favour of a case-to-case consortium effort and not an en-bloc one.

In the case of ONGC Videsh, are you keen on retiring its FCNR (B) loans?

Currently, the rupee is strong and so I am not in favour of retiring or refinancing the $60-70 million loan. Once the market conditions change, I would like to retire the loan.

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