Will meet year's target of 27.54 mmt: ONGC

Sudhir Vasudeva, chairman, ONGC explains to CNBC-TV18 that the PSU is hopeful of meeting its annual target of 27.54 mmt. Vasudeva says that the decision to hike diesel prices will be taken only in the second and third quarters when the position of the subsidy becomes clearer. The ONGC chairman adds that the PSU would technically support any effort to increase production in Rajasthan.

Below is an edited transcript of the interview on CNBC-TV18. Q: The minister of state for oil and gas announced that the government would not be able to hike diesel prices due to high the inflation and added that that there would have to be alternate solutions. Given the current state of under-recoveries you are currently grappling with, the OMC situation is clearly not sustainable. Are you expecting the upstream burden to go up from the level of 31% recorded in Q1?
A: The first-quarter subsidies are always tentative and the picture becomes clearer only in the Q2 or Q3 and only then will the hike in the prices of petroleum products or under-recoveries be decided. The rate of foreign exchange – the rupee vis-à-vis the dollar- is becoming important as it impacts under-recoveries and subsidy burden under-recoveries.
At this stage, it is not prudent to raise concerns regarding the payment of Rs 12,346 which ONGC had to pay. We are sending out a word of caution that we must get remunerative prices- in this quarter we got a net realised price of USD 46.62 a barrel which is not good in the long term.
We have been telling the government that USD 55 - USD 60 is the minimum which we need to be paid. However, we will have to see how the situation pans out across the year. Q: Do you expect a hike in diesel prices or a cut in the overall under-recoveries? What are you internally factoring-in terms of estimates and what you will have to bear for this year?
A: We don't really provide for such eventualities. But our projections certainly factor-in post-discount prices. I think we have considered a price-level of over-USD 55 in our calculations for profitability.
So this is what we expect to get. ONGC's plan outlay is totally dependent on our internal generation of resources. If we can't generate enough resources, we don't get remunerative prices.
Our outlay for the year is Rs 33,065 crore - if we don't get a price that is adequate, I don't think we will be able to generate sufficient resources, and in that case we will have to dip into our surplus and reserves. Q: What, according to you, is the practical manner to approach the problem?
A: The formulas have been offered. ONGC has always stated that the government is well within its right to get this because subsidies are being taken from nominated fields where we are not required to pay profit petroleum.
We always demanded for a transparent mechanism. In the past, we have advocated that there could be price slab up to USD 60 - USD 70 and beyond that we are willing to share.
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When oil prices go up, the service prices also go up immediately. However, service-prices don't fall when oil prices fall. The BK Chaturvedi and Somaiya committees submitted a number of suggestions and if any of those are implemented, the situation would improve. Q: Have you heard anything about an empowered group of ministers headed by Anthony considering the revision of gas prices? Is there any possibility of a hike before the government’s term ends in 2014?
A: The year 2014 is relevant for Reliance because its gas price is due for revision in March or April 2014. We only hope that the APM prices and other non-APM prices would be increased around the same time. In the past, the APM price of USD 1.7 - 1.8 a million btu, did not allow us to recover our cost of operations.
Today, we are able to at least cover our cost of operation in the areas where we are not producing large quantities of gas. However, we're still we are not able to record good margins. But overall as a portfolio, the gas business is not losing anything. An increase in gas prices will definitely be good for us. Q: What about Rajasthan - Cairn recently reiterated that there was  potential to raise production up to 300 kdpd? Do you see this as a possibility? Will approvals be issued by the government? By when can a further ramp be expected?
A: The level of 300,000 barrels of 15 million tonne, can come only through exploration. Otherwise, it is possible to go upto 2,35,000 barrels through existing fields and today, there is no conflict of interest. In the past, ONGC had to pay royalty for the entire production. If it is possible to produce increased levels, then we will definitely support provided it satisfies our technical teams. Q: Production in the first quarter was down 5.6 mmt. Are you likely to meet the target of 27 mmt?
A: Our target for this year is 27.54 million tonne of domestic production as well as our share from joint venture production sharing contracts. We are hopeful of meeting this target. Q: What is your output target at OVL?
A: For OVL, the target this year is 8.75 million tonne and is slightly less compared to last year’s output of about 9.45 million tonne. The reason for our inability to produce was due to political situation in Sudan and Syria. The situation in Sudan is now improving and an agreement has been signed for transportation of oil and gas.
The situation in Syria continues to be difficult. Hopefully, this year we hope the production will remain at the same level. We expect production to improve next fiscal thanks to supply from Venezuelan and Vietnam. Q: You have announced a fairly significant discovery in the D1 block. Are you are likely to make more such discoveries ?
A: The discovery which we have made in D1 was through development drilling. The discovery is expected to provide 50 to 60 million tonne. We hope make more such discoveries.