Brent crude prices post the OPEC supply cut news jumped to a 16-month high and was trading above USD 53 per barrel. Hike in oil prices is seen as a big positive for oil producing companies like ONGC, Oil India etc.
AK Srinivasan, Director Finance, ONGC told CNBC-TV18 that surge in crude oil prices will aid topline growth. On an annulised basis their revenues would be up by Rs 1000 crore and profits would increase by Rs 425 crore.
The company is on track to achieve production volumes of 25.73 metric tonnes for FY17, said Srinivasan. In the first half the production volumes stood at 12.73 tonnes, he added.
Meanwhile, since no subsidy has been decided by the government for FY17, the benefits of higher crude would flow into the company, he said.
Realisation in FY17 so far has been at USD 47, said Srinivasan.
Below is the verbatim transcript of AK Srinivasan’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: If you can first explain to us what the impact of the big rally in crude would be on the margins for your business?
A: If the crude prices are rising by a dollar and for a total one-year volume if you look at there is an increase of almost Rs 1,000 crore from the topline. On the bottom-line it is Rs 425 crore if you see it on annualised basis. So, this rally of crude moving I don’t know how long the rally is likely to last, but at these particular prices definitely there is going to be an increase in our gains on our topline for the balance period of the year.
Anuj: For ONGC of course the problem is that the net realisation is capped at a certain level if crude prices start to go beyond a level. What kind of net realisations are you looking at because that won’t be in picture up until at least USD 60 per barrel that is what we were told that up until USD 60 per barrel you are free to price your products to oil marketing companies, so what kind of net realisations are we looking at?
A: Now as of now if you look at my half year, my realisations was about USD 47 and the prices which are likely to move up and it moves up, I don’t know to what extent, but I had never mentioned about the USD 60 cap at any point of time. This is just a market which is perceiving it. So, definitely the things as of now for 2016-2017 there is no subsidy as decided by the government and we feel whatever the price is coming it should be passing on to the companies.
Latha: We spoke to couple of commodity, long time oil watchers their guess is that for the next couple of quarter’s crude maybe around USD 56. Assuming that USD 56 is right what does it do to your net realisation for the second half as well what does it do you your cess?
A: Definitely cess is calculated based on 20 percent ad valorem basis and definitely if it goes beyond USD 53 I will have to share more than what I was sharing in the past. Earlier the crude cess was being calculated at 4,500 per metric tonne which translates to about USD 9 per barrel. Keeping on ad valorem basis if it goes up to USD 53 I am sharing up to USD 9 and beyond USD 53 it goes beyond USD 9 that is going to be the impact per barrel.
Latha: That is for the cess, but assuming USD 56 what kind of net realisation will you look at?
A: As I told you this is if you calculate on USD 1 increase in crude prices and keeping my volumes of 25 million tonne plus it generates a topline of Rs 1,000 crore. The profit after tax (PAT) levels are Rs 425 crore for the year basis. So, if it is just going beyond that then the volumes will be calculated accordingly.
Sonia: What kind of production are we looking at over say the next six months over the second half of the year compare to what we saw in the first half?
A: First half I had volumes of about 12.73 metric tonne on the production. Almost we are touching the half way mark and my current year annualised production is targeted to be around 25.7 metric tonne. So, this balance which is left is around almost 12.something and that should give me the increase in revenues on the topline.
Latha: What about the gas part of your output, with the lower gas prices how would the margins and revenues workout for the gas part?
A: On a gas, if you have an USD 1 increase or decrease there is an impact on my total volumes of Rs 4,800 crore on a annualised basis. This gas prices are declared on a half year basis, so there has been a decline nearly to a USD 1. So, there should be an impact on my volumes around Rs 2,400 crore for the next half and that translates on a bottom line to the extent of about Rs 600 crore or something.