ONGC to incur capex of Rs 15,000 crore

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ONGC has posted a net profit of Rs 15,643 crore versus Rs 14,431 crore on YoY basis in FY07. During the corresponding period, its net revenues stood at Rs 56,904 crore versus Rs 47,923 crore on YoY basis.

 

R S Sharma , Chairman and Managing Director, ONGC said that their profit after tax has gone up to Rs 15,643 crore which is an increase of 8%.

 

He added that it is significant that the bottomline growth has come despite a stiff increase in subsidy sharing.

 

Excerpts from CNBC-TV18's exclusive interview with R S Sharma:

 

Q: Take us through the numbers, the subsidy burden for this quarter and tell us what are you targets for the coming fiscal?

 

A: On a standalone basis, our profit after tax has gone up to Rs 15,643 crore, which is an increase of about 8%. It is significant that this bottomline growth has come despite a very stiff increase in subsidy sharing.

 

As against Rs 12,959 crore subsidiary discount given to the refinery in the previous fiscal in the last financial year, this discount had been of the order of Rs 17,024 crore.

 

So, we find the overall production of crude oil has been higher by 7%. As compared to the previous year, there was a marginal decline in the gas production because of floods in Hazira. But overall, we find the performance of the company has been extremely good, especially on the exploration front where we made reserve accretion, which is the highest in the last 10 years.

 

Q: What is the expenditure that you are going to do in the next two-three years? Are there any discoveries that you could highlight?

 

A: We are already into the first year of the 11^th plan. For the domestic activities of our 11^th plan, the outlay is of the order of Rs 75,000 crore. On an average, we shall be incurring Rs 15,000 crore capex. Last year, our capital expenditure on planned activities was Rs 13,300 crore.

 

So, 97% of this expenditure is going to be incurred on the E&P activities, increasing production of oil and gas, other renewal of the assets and acquiring some new assets.

 

Q: What are the targets for ONGC Videsh Ltd , or OVL ?

 

A: In OVL, currently our overseas investment cumulative has been of the order of about USD 5 billion. The capex plan for OVL for the 11^th plan period is of the order of Rs 45,000 crore and that works out to almost USD 2 billion per year.

 

Besides the existing properties we have, where the production is taking place, we are making investments for the incurring expenditure there. We are working on some other new acquisitions and certain discoveries we have made. We need to make investments for the development of those discoveries.

 

So, we feel OVL has been doing quite well and some of the initiatives that we are pursuing could warrant the total investments to go up higher than the numbers that has been approved by the government for the 11^th plan.

 

Q: Regarding your KG Basin production schedule, how is that going and how much is the reserve there?

 

A: In the KG reserve, we found there were three culminations, of which one has been drilled with one well. Based on that, we had worked out assessment of 2 TCF to 7 TCF. We are currently doing the 3D seismic and we are waiting to get some more ultra deep water drilling rig. There will be more appraisals when we do more drilling. So, these numbers could go up in the future.

 

Q: What has happened to the Rajasthan Cairn Energy partnership? You were supposed to pay some cess, is that on or off?

 

A: The cess payout would come when the production begins. Firstly, Cairn has plans to begin production in 2009. The issue was how to evacuate the production.

 

But my understanding is since we have a 30% partnership there, discussions are taking place and another meeting is scheduled after two days where the specific decision will be taken about the plans to evacuate the crude.

 

There are plans for another pipeline project that is not really linked to this pipeline project. That is separately being discussed with the State government.

 

Q: One of the major concerns has been the subsidy burden. How are you seeing it going forward and what is the company planning to do to arrest that?

 

A: One is the subsidy sharing mechanism. I do not think that, per se, we resent the sharing of the subsidies because that is the way the government has been managing, keeping the product prices low despite crude oil prices ruling high.

 

So, under-recoveries have to be shared by somebody in the system. One of the mechanisms that the government has worked out is that one third of these under-recoveries be shared by the upstream that's coming to ONGC.

 

We have been lobbying with the government and the administrative Ministry that they should work out a clear mechanism. The stakeholders, the company, and the minority investors should know how this subsidy burden is going to be affected.

 

Q: Do you feel your profits would grow next year or there will be some sort of a correction in the subsidy burden?

 

A: Some rationalisation will come and I see the upside to come predominantly on our gas business where we are having huge under-recoveries.

 

In fact, on a standalone basis, from the gas business, ONGC gets negative margins. So, there are net losses on the gas business. Some corrections are coming. We had discussions with the Tariff Commission and they have given certain recommendations. The administrative Ministry is in the process of taking some decision on that.