In an interview with CNBC-TV18’s Sonia Shenoy and Anuj Singhal, ONGC CMD DK Sarraf explained why the firm’s fourth quarter earnings released yesterday came in way below estimates.
“International crude prices were quite low. So revenue was low and that impacted our profit. Second, we had to take some more write-offs of our exploration wells,” he said.
Below is the transcript of the interview on CNBC-TV18.
Anuj: What led to these numbers being so below the street expectations?
A: Several things happened during this fiscal year. First, international crude prices were quite low. We have a significant quantity of our crude oil, which is produced in Rajasthan in a joint venture (JV) and Panna-Mukta-Tapti (PMT JV) and Ravva JV. There are also value-added products like liquefied petroleum gas (LPG), naphtha etc which we produce from Hazira and Uran. These are sold at international prices.
So revenue was low and that impacted our profit. Second, we had to take some more write-offs of our exploration wells and some of these wells were quite high cost wells which we had to write-off. So these were the two main reasons which I would attribute for lower profits during the year.
Sonia: What kind of guidance would you like to lay out in terms of production for the next year?
A: The total production would be about 26 million tonnes during the year 2015-2016.
Anuj: Now that crude prices have fallen, will capital expenditure (Capex) be delayed for ONGC?
A: We are not looking at downsizing our capex. Whatever decisions we have taken in the past, they are quite reflective of that. In the last year, five projects we have approved that have total capex of Rs 25,000 crore and we would be receiving from these projects a very significant amount of oil and gas production.
Additionally, in the next few weeks, we will consider seeking approval for our project of development of Kg Dwn 98/2 block in deep water of Krishna-Godavari (KG). So, we are not worried about reduction in oil prices because we believe that this is the time we can make our assets based and the prices, we feel that they will again be high.
Sonia: Have you received any clarity on what the future subsidy mechanism could be?
A: We have not received any clarity. However, what we know is about Q4 of fiscal ’15 and Q1 of fiscal ’16.
Anuj: You must be involved with the divestment plans. If you could update us on the latest in that regard and what is the plan?
A: This is a decision which the Government of India has to take. We do not know much on this.
Sonia: Has the exploration cost gone down and how will that affect the company?
A: Exploration costs have gone down. Even development costs have also gone down. It is good news for exploration and production (E&P) companies. That’s why we feel that this is a time we can make more assets.
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