Pratim Ranjan Bose

Kolkata, Oct. 17

Having a reserve of $5 billion cash and a debt-free balance sheet, ONGC is planning to step up its acquisition initiative to take full advantage of the global liquidity crisis, the reduction in valuation of oil equity due to fall in crude prices, and heavy asset redemption by funds.

“We see this as an opportunity to increase our acquisition programme,” Director (Finance), Mr D.K. Saraf, told Business Line. ONGC is currently pursing a £1.4 billion bid to acquire Imperial Energy, a UK-based company having substantial oil equity in Russia’s Siberia region.

“We are a virtually debt-free company with $5 billion cash reserve and there is a cash accrual even at the prevailing crude price. As a serious player in the business we will therefore make maximum use of the emerging opportunity,” he added.

ONGC’s views were echoed by Mr Harishanker Subramaniam, Executive Director & Head (Infrastructure & Government) of KPMG: “The global liquidity crisis would dampen the sentiments in various sectors in the short term. However, the fundamentals for the oil and gas sector remain strong. Despite the recent reduction in oil price that was mainly in response to a perceived slowdown in some of the large consuming nations, the level of prevailing price continues to be attractive enough for a growing and sustainable E&P business.”

According to him, while a few fly-by-night operators may disappear during the turmoil, serious E&P players would continue with the investment plans.

Crude price outlook

Interestingly senior ONGC officials unanimously agree that the current trend of crude prices may be short-lived. While falling crude price may help the Indian economy, lack of large scale discoveries in the global oil industry and no major change in the supply demand fundamentals are expected to keep prices firm near $100.

“We do not see any major change in fundamentals to keep oil prices low in the foreseeable future,” an official said.

Depreciating rupee helps

Meanwhile, a sharp depreciation of rupee helps ONGC in covering a substantial part of the drop in profitability due to fall in crude prices. According to a rough estimate, unless the company is asked to share the losses of downstream sector, its profit after tax is impacted by Rs 820 crore (either way) for every $1 price variation of crude oil. Crude (India basket) has come down by almost $40 a barrel between July and September.

On the other hand every 100 paise fall in rupee makes crude costlier by 2 per cent. Rupee had dropped by nearly 400 paise between July and September.

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(This article was published in the Business Line print edition dated October 18, 2008)
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