State-owned Oil and Natural Gas Corporation (ONGC) reported a 50 percent decline in net profit for the December quarter, weighed down by decrease in income, exploration costs write-off and other income.
The company paid Rs 9,458 crore in fuel subsidy during the quarter when its average crude oil price realisation fell to USD 76 per barrel from USD 108.19 in October-December 2013.
In an interview to CNBC-TV18, Alok Banerjee, director-finance, ONGC says the company is aiming to have better realisations in the next quarter.
Furthermore, Banerjee says the government has not yet give any clear idea on the subsidy sharing formula and the company is awaiting the same
The Oil Ministry proposed a new subsidy sharing proposal by which upstream companies ONGC and Oil India would not make any contributions towards subsidy burden if crude prices are at or below USD 60 per barrel.
Below is the verbatim transcript of the interview.Anuj: Is there any assurance from the government that may be in Q4 you will not have to pay any subsidy because the crude price average has been about USD 50-55/bbl and we believe that as per new formula up to USD 60/bbl there will be no subsidy burden on upstream companies?
A: As such no such assurance is there but as you have been telling that it is USD 60/bbl, there is no such formula that has been conveyed to anybody or to us at least officially. However, we feel that overall subsidy itself is coming down and diesel there is no subsidy, earlier petrol also has been removed from the subsidy bucket so overall subsidy is coming down very drastically. I feel that there is no reason to think that subsidy will be coming down. This time also subsidy has come down as compared to the last year so far but only thing that gross price is coming down.
Anuj: In an environment where the crude prices have come down so much and the overall subsidy burden has already fallen and the government has also increased excise duty don’t you think it is logical that upstream doesn’t pay any subsidy at least in Q4 because otherwise there is a good chance of you making a bit of losses in crude segment, right?
A: Exactly, that is what I was telling you because this subsidy itself is coming down. If you can recollect in 2012-2013 it was 160,000 and 2013-2014 it was 140,000 and this year it is expected to be around 80,000. So, overall subsidy has come down more than 50 percent. We strongly feel that Q4 things will improve.
Sonia: Can you give us a sense of what production will look like in the Q4 because in this quarter I understand that your crude production has risen about 2 percent on a quarter-on-quarter (QoQ) basis?
A: Our production has improved marginally and this is after a long time that production has started showing promise. In fact offshore production is increasing but in onshore some of the fields are not behaving. As you know we have been operating mostly in old fields so this sort of erratic behaviour sometimes comes. After FY14 enhanced oil recovery (EOR) and improved oil recovery (IOR) scheme onshore has started and moreover some new fields, some marginal fields have been added. So, we feel that offshore our production would be more than what is the last year but onshore there may be marginal decline. So, overall production profile, ONGC as a whole, crude production will be like last year, may be margin increase over the last year.Sonia: Could you give us some numbers by the end of FY15 what could the production be?
A: What I can assure that we would be able to even achieve a little more than last year’s actual figures.
Ekta: Can you give us a sense in terms of what your net realisations will look like in Q4, will it better from the USD 36 that you averaged in this quarter?
A: We have to otherwise overall first nine months our average price post discount price is almost like last year level. So, it is about USD 41/bbl vis-à-vis last year was USD 44/bbl. So, this Q4 we have to improve a little bit.
USD 35-36 won’t be able to sustain without considering our return on capital and other factors in fact real cost of production itself is above USD 36-37. So, definitely net retention price of USD 35-36 is difficult. Since this Q4 price would be in a range USD 50-55/bbl however, we feel that overall under recovery is going to reduce drastically and our portion of subsidy is expected to come down.
Sonia: You haven’t got any assurance yet on what the subsidy formula will be but any kind of timeline because I am sure you have interacted with the government several times, any kind of timeline on when you will get more clarity on the final subsidy formula?
A: There is no timeline or nothing. However, we feel that in Q4 we will get it because as you know this last seven to eight months this is continuing and one-by-one things are being sorted out. I hope that Q4 this formula will get final.
Ekta: Any communication from the government at all with regards to their plans divestment on ONGC stake?
A: No such communication and I feel that may be that with retention price it maybe little difficult but no such official communication has been received by us.
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