Moneycontrol
Apr 10, 2013 05:04 PM IST | Source: CNBC-TV18

ONGC's FY14 output target at 28.6 MT: CMD

Oil and Natural Gas Corporation (ONGC) is confident of upping production to 28.6 million tonnes of crude in current financial year as it is expanding its capacities. In FY13, the state-run upstream firm produced 26.12 MT from its reserves


Oil and Natural Gas Corporation (ONGC) is confident of upping oil production to 28.6 million tonnes  in current financial year as it has embarked on an expansion programme. In FY13, the state-run upstream firm produced 26.12 MT from its reserves.


Also Read: ONGC inks MoU with KK Birla Group co for fertiliser unit


The firm has recently launched production operations from its onshore marginal gas fields (fields that are nearing an end to their commercial lives) in Krishna-Godavari Basin at Ponnamanda. Altogether, it has 110 marginal fields across India, a few of which have been allotted to private parties.


However, the firm has been missing production targets in previous quarters, but the company's chairman and managing director, Sudhir Vasudeva, is hopeful of achieving the set target in FY14.


In an interview with CNBC-TV18, Vasudeva said though the firm derives 72 percent of the production from fields which are anything between 37-52 years old, it has yet maintained production level. "We have introduced improved oil recovery (IOR) and enhanced oil recovery (EOR) schemes  by which we manage to arrest decline," he said adding that around 39 of its fields are in small clusters and once the firm starts production there, it will see significant jump in output.


Below is the verbatim transcript of Sudhir Vasudeva's interview on CNBC-TV18

Q: How is FY14 shaping up for you both in terms of production plans and whether you have any clarity on subsidies? How much will you need to payout?


A: On production, things are looking up. We will be increasing production in this FY14 because many of our marginal fields on which we have been doing projects, will fructify and increase production. Last year, we ended up producing 26.12 million tonnes and the target for FY14 is 28.6 million tonnes, a jump of more than 2.5 million tonnes.


With regards to subsidy, we have not heard anything officially and in the first nine months we have already paid Rs 37,000 crore. Even if there is any effect of the reforms that have taken place in terms of increase in diesel prices, it will not have much effect only for the last quarter. I do not think that the subsidy burden would be significantly less for the fourth quarter and should be on the same order.


Q: On production targets some concerns have been arising both in terms of the fact that ONGC has been missing its targets over the last few quarters and are dealing with more and more aging fields. Are you confident of achieving the target that you set out for next year?


A: Absolutely, 72 percent of our production is coming from 14 fields that are anywhere between 37 years to 52 years old. It is impossible to maintain production from these kind of fields. Only because of the efforts taken by ONGC for schemes on improved oil recovery (IOR) and enhanced oil recovery (EOR), we are able to atleast maintain production to these levels.


The production from vintage fields falls at the rate of 7-8 percent and we are also witnessing the same. Due to IOR and EOR schemes, we are able to arrest this decline to a very small level and that is why the production looks stagnant at 25-26 million tonnes. About 39 fields are in small clusters, 13 such schemes are there, once we put them on, we will be seeing a jump in production in this fiscal.


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Q: Some of your investors believe that your share of the subsidy burden could go up to as high as 40 percent this year leaving your net realisations to no more than USD 45-46/barrel. Do you see that as a possibility?


A: That is a worry. In first nine months, we have USD 46.9 as net realisation and it is only because the rupee was week vis-à-vis the dollar that we have made reasonable returns. This is definitely a concern, because the fields are old and the operational expenditure (OPEX) for maintaining these fields has increased. This is where the law of diminishing return is very evident. For example, in case of Mumbai High, our biggest field for every barrel of oil that we are producing, we have to pump 4 barrels of water to push up that oil, so the cost of operations are increasing.


Today, our OPEX across ONGC is of the order of USD 42 and if we get only USD 47, then it is difficult to make both ends meet. This is what we have been impressing upon Ministry of Finance and everyone that we need to get remunerative prices for our oil.


Q: We have been talking about the possibility of a gas price hike in FY14, do you have any updates on its likelihood and the timing if it comes through?


A: Nothing can be said about the timing, but the Rangarajan Committee recommendations are under active consideration and it is under discussion. A Cabinet Committee on Economic Affairs (CCEA) note has been made and is under circulation for comments by various ministries. There is resistance from consumers like fertilizers and power, but it is good for producers. Unless we get good prices, developing fields from deep water would be difficult.


Q: Given where crude prices have been heading of late, would you be concerned that there could be further pressure on your realisations that have been coming off in the last couple of months?


A: We are only hopeful. The diesel prices have been increased thrice in last three-four months. If that happens, even today the under-recovery on diesel is of the order of Rs 6.5. If that keeps happening every month in another year or so, the subsidy on diesel would be gone and that is maximum as about 57-70 percent subsidy is only on account of diesel. It should not be the case where the burden on oil exploration company is not reduced, but the share held by the government is reduced to bring their fiscal deficit under control. We hope that it is equitable reduction on the burden that is being shared by the oil exploration companies as well.


Q: Any progress on the suggestion of the plan panel that ONGC Videsh (OVL) should be hived off and listed separately?

A: There is absolutely no strength in this argument. Today, OVL’s strength is ONGC. The entire manpower of OVL is provided by ONGC, the technical prowess is by ONGC, the corporate guarantee is given by ONGC. So there is absolutely no basis for hiving off OVL. OVL is doing a great job of 100 percent subsidiary of ONGC.

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