Under recovery won't fall despite low crude price: ONGC

Crude oil price is on a continuous fall hovering around USD 79 per barrel, almost near eight-month lows from USD 106 in less than two months.

However, it has nothing cheerful to offer for the oil and gas producer companies. Sudhir Vasudeva, Chairman, ONGC says that under recovery won't fall even though crude oil price have decreased.

In an interview to CNBC-TV18, he said, "Depreciation of rupee is 20% which wipes out all the gain of oil price decrease. As far as the subsidy is concerned we have been instructed only to pay that provisionally USD 56 a barrel."

Vasudeva is also not hopeful that net realization will change much in FY13.

Here is an edited transcript of his comments. Also watch the accompanying video.

Q: There has been quite a bit of relief in terms of crude prices and that is probably brought down the under recovery projections quite significantly. Has there been any communication to you in terms of the subsidy sharing that ONGC may have to bear for the first quarter whether it will be as high as the last time around of 38-39% or lower?

A: First of all although the crude oil prices have decreased but that does not mean that the under recovery can go down because the rupee has also depreciated significantly over these few months. If you see oil was USD 111.89 per barrel during the fiscal year 2012 and the first quarter it is USD 106.89. If you see in terms of rupee, rupee was about 48 and it has now gone to about 57 for dollar.

So depreciation of rupee is 20% which wipes out all the gain of oil price decrease. As far as the subsidy is concerned we have been instructed only to pay that provisionally USD 56 a barrel.

Q: What is the impact on net realisations because of the way crude has come down. Will your realisations per barrel change significantly?

A: Not really. In case we work out at USD 111.89 which was our FY2012 at 48 it comes to Rs 5,370 crore  in terms of rupee for a barrel. Now you have accorded USD 106.89 with 54 point something for the first quarter of this foreign exchange, then it comes to about Rs 5700 crore so it does not really change much.

For every dollar increase in crude oil price the subsidy burden increases about Rs 3,750 crore. Rupee depreciation also adds to under recoveries by Rs 9,200 crore so it is a very complex situation. Apparently it appears that oil prices have fallen down so the under recoveries will go down substantially which may not happen that way.

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Q: When the petrol price hike happened there was a lot of expectation that there might be some kind of address of price hike in diesel and that would be material for your under recoveries and your subsidiary sharing burden. Since then have you heard any kind of noise from the oil ministry or anybody in Delhi that this is on the consideration platform or will be addressed anytime soon?

A: Since this is a matter of OMCs they are regularly in touch with this. As far as ONGC is concerned we have always been very consistently been telling them that we need remunerative prices for oil. Although we get international price but after discount we get in the order of USD 55-60, last year our realisation was USD 54.71 which is just bear minimum for us to sustain our operations.

Q: Just to go back to that under recovery projection this is a figure that was doubted by the oil ministry themselves talking about how it has come down to Rs 1,45,000 crore. Would say that is a right calculation? Is it not going to be the figure that is being talked about for FY13 in terms of total under recoveries?

A: I am not saying that. Under recoveries can be calculated on a day when the situation is dynamic. If we keep on calculating the way dollar versus the rupee has been fluctuating the under recoveries also change and when the crude oil prices are changing the product price also change so under recoveries also change.

Q: Because of the change in dynamics in terms of what's happened with prices have you entered into any dialogue with the oil ministry? Or any communication to you in terms of how the subsidiary sharing formula will be worked out this time because the last quarter round it was a big surprise for the market when it didn’t work out to that one third ratio which has been the traditional barometer?

A: Normally this subsidy mechanism etc it is a constant dialogue. Every time we interact we keep on telling them about this and the government is mulling over this for some formula, one day will be found out. As far as the first three quarters are concerned, these are normally provisional. For the first quarter we have been told that we will have to continue paying at the same formula which was last year which is at USD 56 a barrel.

Q: What is the state in terms of the ONGC Videsh (OVL) listing? Has there been any progress on that front and is it likely to happen before December 2012?

A: It is too premature to say whether this will happen by December or when it will happen. But we are in discussion internally as well as with our administrative ministry.

Q: There were some talk that a new committee will be formed in order to look at this entire decontrol of diesel issue. What to do with fuel policy under Kaushik Basu - does that mean that the previous set of recommendations have been put on the back burner and there is going to be a fresh round of discussions now about what should or should not be done on things like diesel?

A: It is very difficult to say. In the past also there have been two committees, one was of BK Chaturvedi, then thereafter there was a committee of Kirit Parikh. This is governments strategy to constitute committees and to accept fully or partially the recommendations of the committee.

Q: Anything that you are expecting to see on gas prices themselves. There was communication from Niko recently that seem to indicate that there could be some change or hiking of gas prices before 2014 any indication of that?

A: We are also reading from the media and the kind of discussion which are taking place and the kind of request which has been put up by all these companies who are in the business of gas. We are also waiting and watching.