The Hindu Business Line : Tremendous value to be unlocked in oil & gas biz

New Delhi, Dec. 31 The state-owned upstream giant ONGC has worked out an aggressive strategy for 2008. With a market capitalisation of about Rs 2,65,000 crore, it is set for an image makeover, enhance its core activity, and strike more strategic alliances to unlock further value. ONGC’s proven reserves today stand at about seven billion barrels of oil equivalent.

In a free-wheeling interview with Business Line, the Chairman & Managing Director of ONGC, Mr R.S. Sharma, shares his views on the company, competition and policies.

If there is one thing in your business that you would like to see different in 2008, what would it be? As you look back, what do you think was the biggest challenge? Do you think private players have marched ahead of you?

ONGC’s image perception as a professionally managed E&P company would be the single-most issue I would like to address.

While ONGC has done more than reasonably well, its credibility in the public domain does not adequately recognise that. I would definitely like to change this perception. The other very significant area would be to improve the morale and motivation of our exploration, production and technical professionals.

As an E&P company, our prime objective is to accrete more reserves and sustain production levels from the ageing fields. We have done quite well on both these areas in 2007, with highest reserve accretion in the preceding decade.

I do not think private players have marched ahead of ONGC, with one or two exceptions. The recent discoveries by Cairn India and RIL augur very well for the sector. ONGC has also done quite well and is poised to show even better results. There are, however, certain impediments in fast decision making process and award of contracts, due to very high level of accountability as a PSU entity, and procedural constraints.

What is your advice to ONGC shareholders and general investors this year? Where would you like to see ONGC a year later in terms of growth and position in India Inc?

I would like to reiterate that there is tremendous value to be unlocked in the oil & gas business of ONGC. We have realised some value in the last few years. I am optimistic that the future has a lot more to offer. In 2008, I see ONGC reinforcing its position as a global energy company, known for its reliability in providing energy solutions. Based on fundamentals like enterprise value and P/E multiples, ONGC’s stock continues to be highly undervaluedWhat is the impact of volatility in crude oil prices on ONGC’s capital expenditure? You have been quoted as saying that your capex plans are expected to exceed the targeted budget – what are the reasons for this?

As per projections, crude prices will remain high in the near future. So, ONGC is considering all E&P projects, which were hitherto considered unviable, for immediate implementation. This has increased our capex outlay this year. In order to monetize the resources fast, we may even have to exceed the planned capex.

ONGC saw its share of controversies in E&P. ONGC has been termed as a slow starter, with no major discovery to its credit, except UD1 in Krishna Godavari – which was also marred with controversies. Do you think Government policies need to create a more conducive environment for India Inc to become globally more competitive? What are your hopes and expectations for ONGC in the New Year?

Certain controversies did get created in the past about ONGC’s performance by a certain section of the media. I am quite happy that they are behind us now. Coming to facts, ONGC made 22 oil and gas discoveries in financial year 2007, of which nine were from new prospects. In November 2007 ONGC made six oil and gas discoveries, three from new prospects. By any standards one cannot term such performance as ‘slow starter’. As regards UD1 discovery, there is no controversy now. Unfortunately, non-availability of ultra deep water drilling rigs (even at very high charter rates) remains a major constraint for appraisal and delineation.

2007 saw OVL formalising contracts for acquiring oil and gas assets abroad. Do you think overseas assets help in enhancing the country’s energy security? If yes, in what form – physical or financial? What is your strategy for bidding for overseas blocks? Do you think your tie-up with Mittal and Hindujas will widen your canvas?

As of now India is prognosticated to have about 0.5 per cent of global hydrocarbon reserves (with 17 per cent of global population). Under this scenario, overseas asset acquisition is definitely helpful. Right now, given ONGC’s expertise in E&P, we are considered partners-in-progress in many foreign countries, so it makes business sense to take up equity oil participation there. However, as political and diplomatic clout also play a vital role in foreign countries we feel tie-ups with NRI houses like Mittals and Hindujas shall ultimately help in fulfilling our national mandate. In countries like Central Asia and Africa, association with Mittals will prove useful and OVL looks forward to ride on that benefit. Likewise, Hindujas have an excellent networking in some oil rich gulf countries. Their association with OVL is likely to bring bigger opportunities.

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