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ONGC: Analyst meet extracts

Jun 29, 2006

Exploration and production major, ONGC, had recently organised an analyst meet to discuss the performance of the past fiscal along with company’s future plans. Following are the key extracts of the meet.

  • On discounts offered on crude oil: During FY06, ONGC had a gross billing rate of US$ 59.66 per barrel for crude oil sold to oil marketing companies (OMCs), while the recovery for the same was US$ 42.34 per barrel, thus translating into discounts of US$ 17.32 per barrel. While the management indicated that it has no issues with sharing the subsidy burden, it wants the government to do away with ad-hoc subsidy sharing and has asked for the implementation of recommendations put forth by the Rangarajan Committee. The management has suggested the government to levy increased OIDB (oil industry development board) cess instead of the random discounts per barrel on crude. The management favours ad valorem cess as compared to specific cess as it provides flexibility on the part of company as well as the government.

  • On discounts offered on gas sales: For FY06, ONGC sold gas at an administered price of US$ 1.75 per MMSCMD (million metric standard cubic meters per day). Against this, the private consortium of PMT (Panna-Mukta-Tapti), entitled to sell gas at market prices, sold gas at a price of US$ 4.75 per MMSCMD. Thus, the subsidy burden on ONGC on gas is roughly US$ 3 per MMSCMD, amounting to roughly Rs 70 to 80 bn. The management has opined that currently the gas sold by PMT consortium being much higher, along with alternative fuels like naphtha selling at higher prices of US$ 14-15. Also, some LNG imports were done for as high as US$ 8-9 per MMBTU, replicating the increased prices in the international markets. The management has enumerated gas subsidy as one of the biggest concerns for the company and plans to take forward the issue with the government.

  • On the refining business: During announcement of the provisional FY06 results, the management had presented its plans of increasing refining capacity from 9.7 MMTPA to 45 MMTPA over a period of 4-5 years. Clarifying on the same note, the management has now said that MRPL (a subsidiary) is increasing its refining capacity to 15 MMTPA operational from FY10. This incremental capacity will have a distillate yield of 84% and enhanced capability to handle sour crude. ONGC is also planning a refinery in Barmer (Rajasthan) and Kakinada in addition to a grass refinery and petrochemical plant with a capacity of 15 MMTPA in Mangalore. The coastal refinery of Mangalore will an export- oriented refinery. MRPL, the first refinery in the India to produce Euro-III certified products, is now gearing up to produce Euro-IV products so as to cater to the overseas markets.

  • On the retail initiative: Retail initiative of MRPL has seen a slow growth and the management expects the process to be similar in the future. This is apparent from the fact that the OMC’s are losing money due to the subsidy sharing issue. However, for the group’s brand ‘Oval’, MRPL has acquired 425 locations in Karnataka and plans to lay down few retail outlets in next 2 years.

  • On OVL (ONGC Videsh) operations: ONGC Videsh Limited (OVL) has started production in Sakhalin-I and plans to be fully operational from FY07 onwards. OVL, with a reserve to accretion ratio of 2, has also started production at its oil fields in Sudan from 26 June 2006 at a rate of 40,000 barrel per day. Production for OVL is expected to be 160,000 to 1,65,000 barrels per day in the near future. With Sudan block starting production, OVL has 4 assets, which are discovered and put under development – one each in Brazil, Myanmar (gas fields), Qatar and Egypt. OVL has also acquired blocks in Nigeria and Cuba. Two blocks in Nigeria are holding large reserves and are going to give the company substantial reserves in the times to come.

  • On the production front: ONGC drilled 105 wells during FY06 with a success ratio of 0.33:1 with oil being struck at 35 wells. The management expects oil production to increase by 4 to 5 MMTPA over the next 5 years, while the production of gas is expected to increase by 10-12 million tonnes in the next 4 years.

  • On recovery factor of ONGC fields: Currently, the recovery factor of ONGC is in the range of 28% to 29%, which is to be hiked to 32% to 33% over the next few years. Over the longer time horizon, the company plans to take it to the 40% levels. ONGC is spending money to revive the oil fields of Assam and hopes to increase their production to 3 MMTPA from FY10 onwards.

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