Buckled under heavy subsidy burden, Oil and Natural Gas Corp on Wednesday reported modest profit growth in the second quarter. In an interview to CNBC-TV18, ONGC chairman Sudhir Vasudeva said going forward gross realisations would depend on oil prices and subsidy burden although the latter is expected to show a year-on-year decline in FY14.
Also Read: ONGC Q2 net profit up 51% sequentially to Rs 6,064 cr
Vasudeva had said yesterday that realisations (earnings per barrel) were much less than what is needed to maintain production and indicated that if the current situation continues, the company may have to draw down reserves.
The Q2 performance has cast a shadow on India's largest oil and gas exploration company's ability to finance its investment programme. The company is raising debt to fund acquisition of overseas oil and gas blocks. Besides spending to maintain production levels at existing ageing fields, it also aims to explore newer blocks. Vasudeva says the company has achieved 99 percent of production target in the first half of the fiscal and is confident of meeting 27.29 MT production target set for FY14.
Below is the verbatim transcript of Sudhir Vasudeva's interview on CNBC-TV18
Q: What is the expectation in Q3 in terms of margins? Your gross realizations were up 6 percent quarter-on-quarters (QoQ) to 109 bbl. How do you think the current quarter is going to shape up on that front?
A: Everything will depend upon what the oil prices are and what the subsidy burden is going to be and the subsidy burden would be decided on many things - whether any further reform comes or diesel prices increase or not. It is difficult to make any projection.
Q: For the quarter it looks like we are only going to get that 50 paise on diesel and nothing more. Can you therefore calculate what your burden will be?
A: We have to pay about Rs 26,400 crore in the first half and the way it is projected is that the under recoveries this year would be Rs 140,000 crore as we stand today. So, in that sense the subsidy burden would be lesser than what it was last year, but it all depends upon how much load the government is willing to take and how much they want to pass on us. The way it has happened in the last two quarters; we have got more than our share of subsidy burden. Last year, we added up paying Rs 49,400 crore and this year if we extrapolate first half into the year it touches about Rs 54,000 crore. So that is a worry.
Q: Will you be able to meet your FY14 target of 24 million tonne in terms of production?
A: I am reasonably confident that we will be able to meet our annual target of 27.29 million tonne. Typically our production season uptrend in Q3 and Q4 which is our working season.
Q: What about the gas production target?
A: Gas production target is about 25.5 billion cubic metres (bcm) and we will achieve that as well.
Q: Can you give us some indication of what your post subsidy realisations could look like in the second half of the year?
A: In the first half, we averaged to USD 42.56 per bbl. However, everything will depend upon crude oil prices for the first half and if Kirit Parikh committee’s formula continues then for the year we should end up between USD 43-44 per bbl.
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