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ONGC: Targeting higher output - Views on News from Equitymaster
 
 
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  • Jul 18, 2003

    ONGC: Targeting higher output

    ONGC, the exploration major, has reported highest ever profits in FY03 and has become the first company to cross Rs 100 bn mark in net profits. The company has indicated that it has plans to invest about Rs 160 bn in the current year. Out of this, the company plans to spend about Rs 100 bn on the domestic exploration front. This is about 70% higher than what it had invested in FY03.

    Till now the deep-sea exploration activity in India was at a nascent stage, as it required huge investments in rigs (instrument for drilling) and also required high technological expertise. However, ONGC has plans to start this activity in the current financial year. It is kicking off domestic deep-sea exploration activity 3 wells on the east coast and 2 in Maharashtra. Out of the Rs 100 bn capex planned in the domestic front, deep-sea exploration would alone account for about 18%.

    As per ONGC estimates, each well requires an investment of about Rs 800 m - Rs 1,000 m. Overall, the company has targeted drilling activity in 35 deep-water wells during the tenth plan. Deep sea holds a lot of potential for both oil and gas reserves. India, which depends on imports for about 70% of its crude oil requirements, will benefit from any success on this front.

    Apart from this the company has further plans to invest about 20% of its planned capex in the development of three discovered fields. In an attempt to increase the crude oil production, the company plans to further open up more fields for exploration to other companies some of which have been discovered but not explored. It has further plans to open up 96 fields under service contracts. These fields have recoverable reserves of about 200 m tonnes of oil and about 120 BCM of natural gas. Out of this, initially 18 fields would be opened up, production from which is expected to start from early 2004.

    However, there is high risk involved in the deep-sea exploration and this has to be looked at with caution. At Rs 475, the company is trading at a P/E multiple of 6.4x its FY03 earnings. Though the long-term prospects of the company look promising considering its thrust on exploration, as any discovery in deep sea exploration will give a boost to its total crude production. This apart its international arm, ONGC Videsh, has further plans to source about 20 m tonnes of crude oil from its various equity investments abroad, some of which have started to bear fruits in the current quarter.

     

     

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