Will mull bidding for fields on case-by-case basis: ONGC

In an interview to CNBC-TV18, DK Saraf, chairman and managing director, ONGC says the company will big for the oil fields on a case-by-case basis.

The fields will be bid out on the basis of revenue share or the share of oil and gas a bidder offers to the government upfront, and work programme, an official said.

Below is the transcript of DK Saraf's interview with Reema Tendulkar, Nigel D’Souza and Varinder Bansal on CNBC-TV18.

Reema: You are one of the players who gave up a few of these marginal and small fields. Would you be interested in participating in the auctions considering that now revenue sharing is the model which will be adopted and you can sell it at market prices?

A: Yes, definitely. The economics for us would be different as compared to the nomination regime, so we would consider a case-by-case whether it works for us or not.

Varinder: There is also a news of unified licensing that has come out, how do you think that that will impact some of the companies like yourself?

A: That unified license is entirely different thing, it is only for the smaller fields which we were not able to develop after having discovered them for some time because of the fiscal regime and so now the problem could be sorted out and we might be interested in bidding for some of these blocks.

Varinder: But is there any activity which is going on the grounds because world over we are seeing that there has been no demand in terms of the drillers which is happening since last at least one year or two years, the rig rates are just moving down, so there is no activity which is happening in, so even at that point of time giving a number of that Rs 70,000 crore, do you think it is overly optimistic in terms of putting this number and anything could even start on the ground for some of these marginal field drillers?

A: Definitely lot of activity.

Varinder: But who are the private companies which you think may participate going ahead because I am sure smaller companies like Jindal Drilling or otherwise they are not the one, they are the ancillary plays or the ancillary companies which may come into participation but have you heard of any bigger private companies or even some international players? 

A: There are several private companies, both Indian and foreign which are already participating in various rounds of New Exploration Licensing Policy (NELP) blocks, so those companies plus many other companies whose focus is not necessarily on exploration, they are expect to be interested in this.

Nigel: Could you name a few of those companies?

A: It is not proper for me to name any one of them but everybody knows that which are the companies which are working in NELP blocks.

Reema: Let me come back to the auctioning of the fields, is market based pricing attractive at a time when crude prices are at such low levels and the sense is that they are likely to remain at subdued levels?

A: You are right that market price of gas is expected to be low but in any case they are going to be higher than the government determined price, so that could be attractive even for today. In addition, the prices of crude oil and hence of natural gas are expected to rise maybe couple of quarters or after a year or two and when that happens, these fields will become even more viable and for the government of these fields also the NELP companies would take maybe couple of years.

Reema: You said that the market base price even today at current levels is more attractive than the government nominated price. Could you give us a sense of at current levels, what could be the market base price?

A: People are importing liquefied natural gas (LNG) at market prices and this could be USD 7-8 and then some conversion charges from LNG to gas, that also they have to pay. So, those prices are also being paid by the ultimate customers.

Varinder: What has been your experience for the ONGC recent last three or six months in terms of the drilling happening in some of the fields?

A: So far as ONGC is concerned, we have not cut down any of our exploration or development programme because of fall in crude oil prices because we believe that the prices would go up again after sometime.

Reema: What would be the total production that we can expect from these fields, these total 69 fields as an industry expert?

A: I have not made any estimate on that.

Reema: You indicated that you would consider or you will do a case by case analysis of whether the company would be interested in participating in these upcoming auctions. Any early signs of how many would you bid it, in a cluster format? Give us a sense of what the interest from the ONGC end could be.

A: We have many fields in the offshore as well as the onshore around these 69 marginal fields. So, we would see that whether there is a possibility of creating a cluster among the marginal fields or buy the marginal fields along with our existing already developed fields and based on that, if something is coming viable as per our economics, we would definitely go for bidding.

Varinder: I just wanted to ask you one question on the realisation. Considering the way crude has moved down, what do you think some of the analysts on the street should work in terms of net realisation from ONGC?

A: You see, as of now, the subsidiary requirement contribution by ONGC is minimum. Hence that price which we are expected to realise nowadays in very near to the market determined prices of Brent.

Varinder: And where do we stand on the subsidy?

A: Subsidy as I said, that is very minimal because the upstream companies are expected to contribute subsidy on liquified petroleum gas (LPG) which is beyond Rs 18 per kg, kerosene which is beyond Rs 12 per litre. So, only beyond these levels, upstream companies are expected to contribute subsidy. In the first quarter itself, it was not a very high number, so in the second quarter, still it would be a much lower number.