A slump in global crude prices is crimping the margins of explorers, and ONGC is no exception. Speaking to Bloomberg TV India, ONGC Director-Finance AK Srinivasan says every $1 per barrel fall in crude prices impact the company’s top line by ₹900 crore.
The Indian crude oil basket price has now fallen below $30 per barrel. How is it going to impact ONGC?
Definitely it is a challenge for the company now because low crude prices are going to hamper our revenue stream. For every $1 change in crude price, we have an impact on the topline of about ₹900 crore. So the company has to prioritise most of the jobs and look into the cost-cutting mechanism so that we are able to maintain profitability at a respectable level.
Right now we are working on the numbers. But now we are in mid-January and, over the next three months if the prices remain at these levels, then definitely the quarterly earnings will have an impact.
If you could give us an indication of what is your current net realisation on domestic oil…
Up to Q3, my realisations were above $30 a barrel. And in the current year, if the prices are still going to continue at the same level, the average realisation should be at around $30-35.
How does that pan out in the context of the cost of deep water exploration?
Presently, the deep water activities have come down. The cost per volume on deep water exploration will definitely be lower than what it used to be earlier. I cannot offer the numbers right now but there is going to be a greater impact on the exploration business.
We have also been hearing something about the reduction in terms of oil cess and that becoming ad valorem. If it comes down from $9 per barrel, which is fixed at this point, to almost $3.5 per barrel, what kind of benefit will you get?
Definitely the issue has been taken up with the government.
We are looking for the reduction. And if it happens then for every dollar gain, it has an impact on my revenues by about ₹900 crore. So every dollar benefit is going to add value to ours.
If you could also help us with a rough indication of what gas volumes are looking like?
My gas volumes are going to go up in the coming year in comparison to what it is in 2015-16. Definitely the gas price reduction is going to have an impact on my revenues to the extent of what reduction will happen in six months. For every dollar change for a per annum basis the impact is about ₹2,000 crore on the entire volume of my gas.
As far as marginal fields are concerned, the bulk of those were relinquished by ONGC. We hear that the auctioning of those marginal fields might start in December. Can you clarity on the auction for those marginal fields?
The process will start from the government’s side. So I will have no further comments on that.
On subsidy sharing, we hear that the price will fall below ₹12 per litre for kerosene. Is it true that you don’t have to share anything with the government on the kerosene subsidy?
Hopefully, yes. As per the policy set by the government, ONGC does not need to share anything if the price falls below ₹12 per litre. But ultimately, as long as the numbers come out of the government, we cannot share anything on that.
Is there any submission from ONGC for a new formula given the price rout so that it shields you from the uncertainties?
We have already taken up with the government that we should be protected against all these vagaries that are happening. Let’s see how the government looks at it.