Lower net realisation at $42/bbl has disappointed: ONGC

Oil and Natural Gas Corporation and peer upstream companies will together pay around Rs 15,300 crore toward their share of subsidy to oil marketeers for June quarter.The subsidy amount is almost similar to what companies had paid in the year-ago period.

Read This: ONGC's Q1 subsidy burden around Rs 12300cr

Currently, the government and  upstream companies including Oil India, ONGC and GAIL share the losses incurred by oil firms for selling fuel at government rates Of the total Rs 161,000 crore under-recoveries, more than Rs 60,000 crore was paid by upstream companies last year and the remaining was contributed by the government. Meanwhile, lower realisations is a concern for the state-run firm. “Our net realisations have gone down to USD 42/bbl from USD 48/bbl year-on-year,” said Aloke Banerjee, director finance, ONGC in an interview to CNBC-TV18

Below is the verbatim transcript of Aloke Banerjee's interview on CNBC-TV18

Q: Are you disappointed with the first quarter subsidy numbers and the magnitude of it? A: Yes, it is at same level as last year. The government has already announced USD 56/barrel, so accordingly it has been done this year as well. Since the subsidy is fixed and the gross price has come down, as a result, my net earning has come down and that is a worry for us. Q: Given this subsidy, what kind of net realisations has ONGC come down to as we will see in the numbers very soon? A: Our crude oil cost of production is about USD 40/barrel. The first quarter average price was in the range of USD 103/barrel. So, my net earnings will come down maybe in the range of USD 42/barrel, while last year we had a net earnings of USD 47-48/barrel and as a result, this is really worrying us. Q: Are you saying that net realisations could actually be 10-15 percent lower compared to last year despite the fact that the subsidy burden on an aggregate basis will be much lower this year? A: Yes, the subsidy has come down. Last year subsidy in first quarter was about Rs 47,000 crore and this year it is Rs 25,500 crore. The upstream contribution has increased subsidy sharing. It is now 60 percent. Out of Rs 25,500 crore, upstream companies are sharing about Rs 15,300 crore, so it is about 60 percent. Our subsidy is remaining same, but since our net realisation depends on the international and gross price there our net earning is coming down. We have already requested government also to consider our case, so that at least we have a minimum retail price to pursue with further exploration. Q: If the government is not sympathetic to your requests is it possible that ONGC's profits will be much lower than last year? A: It all depends upon the international price. Also, it is a government company, so government would have some consideration and it is not a single factor, other factors are there as well. So, it is very difficult to immediately predict the profitability of the company for the whole year. Suppose the international price comes down, right now government maybe having some immediate problem, but once they overcome this problem we can have some more benefit, at least our subsidy portion comes down.