ONGC books Rs 1,238 crore impairment loss, Q2 net profit down 55%

 India's top oil and gas producer ONGC booked a Rs 1,238-crore impairment loss, which together with a fall in prices led to a 55 per cent drop in the company's September quarter net profit.

Standalone net profit at Rs 2,878 crore in July-September quarter was 54.6 per cent lower than Rs 6,336 crore net profit a year ago, the company said in a statement.

Revenue dropped 31 per cent to Rs 16,917 crore.

The company got USD 41.38 for every barrel of crude oil it produced and sold in the second quarter of the current fiscal. This was 31.4 per cent lower than USD 60.33 per barrel price it had got in July-September 2019.

Gas price was also down by more than one-third to USD 2.39 per million British thermal unit.

"The revenue and profit-after-tax (PAT) for Q2 and H1 of FY'21 have declined as compared to corresponding period of FY'20 mainly due to lower crude oil price realisation. Lower gas prices also contributed to lower topline and bottomline," it said.

Oil and Natural Gas Corp (ONGC) recognized "an exceptional item towards impairment loss of Rs 1,238 crore in Q2 FY'21 to factor into estimated future crude oil and natural gas prices," the statement said.

An impairment loss is a recognised reduction in the carrying amount of an asset that is triggered by a decline in its fair value.

The company said it considered possible effects of low crude oil and natural gas prices on the recoverability of its cash generating units in accordance with Indian Accounting Standards (Ind AS).

It also considered the business conditions to make an assessment of the implication of pandemic, estimate of future crude oil and natural gas prices, production, and reserves volumes.

In January-March quarter, ONGC had booked an impairment loss of Rs 4,899 crore, which led to the firm reporting its first-ever quarterly loss of Rs 3,098 crore.

"This impairment loss (of Q2 FY'21) may be reversed in future as and when there is an increase in crude oil and gas price," ONGC said.

However, net profit for July-September was 480 per cent higher than Rs 496 crore net profit in Q1 FY'21 due to recovery in crude oil prices.

Crude oil production was marginally higher at 4.81 million tonnes in July-September as compared to 4.78 million tonnes in the corresponding period of previous fiscal.

Natural gas output fell to 5.7 billion cubic metres (bcm) from 5.9 bcm in July-September 2019 after demand fell due to the COVID-19-induced lockdown.

During April-September (H1), net profit fell 72.6 per cent to Rs 3,374 crore. Revenue slumped 41.4 per cent to Rs 29,927 crore.

ONGC Q2 net profit down 55% at Rs 2,878 cr due to lower crude oil price

 Diversified energy major ONGC on Friday reported a decline of 54.6 per cent in its standalone net profit for Q2FY21 on a year-on-year basis.

According to the company, the standalone Q2FY21 net profit fell to Rs 2,878 crore against Rs 6,336 crore reported during the corresponding period of previous fiscal.

Similarly, gross revenues declined 30.9 per cent to Rs 16,917 crore against Rs 24,493 crore in FY20.

"The revenue and PAT for Q2 and H1 of FY21 have declined as compared to corresponding period of FY20 mainly due to lower crude oil price realisation," the company said in a statement.

"Lower gas prices also contributed to lower topline and bottom line."

According to the company, it has also recognised an 'exceptional' Item towards impairment loss of Rs 1,238 crore in Q2 FY21 to factor into estimated future crude oil and natural gas prices.

"This impairment loss may be reversed in future as and when there is increase in crude oil and gas price. However, PAT for Q2FY21 has increased by 480 per cent i.e. from Rs 496 crore in Q1 FY21 to Rs 2,878 crore in Q2 FY21 due to recovery of crude oil price," the statement said.

On a consolidated basis, the company reported a rise of 4.3 per cent in its Q2FY21 net profit t0 Rs 5,801 crore from Rs 5,560 crore on a YoY basis.

However, the consolidated net profit attributable to owners was down 19 per cent to Rs 4,335 crore from Rs 5,349 crore reported for the corresponding period of the previous year.

In addition, the consolidated gross revenues declined 17.7 per cent to Rs 83,619 crore against Rs 101,575 crore in FY20. --IANS

ONGC asks govt to cut cess, royalty, free gas price to help company survive

India's top oil and gas producer ONGC has sent an SOS to the government seeking a cut in taxes as well as being granted pricing and marketing freedom for gas to help it weather the slump in prices that has made sustaining operations difficult and may force a cut in investments.

The slump in international oil prices to low-20s ($/barrel) and natural gas prices falling to a decade low of $ 2.39 per million British thermal unit is threatening to push the company into making cash-losses on a monthly basis, sources with direct knowledge of the development said.

While the gas price is way below the cost of production, high tax incidence is resulting in cash losses even on crude oil output.

State-owned Oil and Natural Gas Corp (ONGC) last month wrote to the government seeking abolition of oil cess if price realised by producers is less than $ 45 per barrel. Also, it wants the 20 per cent of price paid as royalty to state governments be halved.

Currently, the government levies 20 per cent ad-valorem cess on the price that producers get. Also, ONGC/OIL are required to pay 20 per cent royalty on the price of crude oil it extracts from onland oil blocks to the state governments.

Sources said ONGC wants the formula of pricing domestically produced natural gas at rates prevalent in gas-surplus nations such as US and Russia. The rates using the formula came to $ 2.39 per million British thermal unit from April.

This price is the lowest that the company will realise since 2010 when the government had moved towards deregulating gas pricing.

In May 2010, the Cabinet had approved an Oil Ministry proposal to raise the rate of gas sold to power and fertilizer firms from $ 1.79 per mmBtu to $ 4.20.

ONGC and OIL got $ 3.818 per mmBtu price for the gas they produced from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel cost $ 4.20 per mmBtu for consumers.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

The BJP-led government had in October 2014 adopted a formula that takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia with a lag of one-quarter. Prices are set every six months -- on April 1 and October 1 each year.

Sources said OID cess, which has increased from $ 3 to $ 13 over the years, is causing a lot of stress on current and new oil and gas projects.

OID Cess is levied on crude oil produced as excise duty under the Oil Industries (Development) Act of 1974. The cess is being levied on crude oil from nominated blocks and pre-NELP exploratory blocks only.

The OID cess was raised from Rs 2,500 per tonne to Rs 4,500 per tonne in March 2012. The price of the Indian basket of crude oil stood at around $ 110 per barrel then.

With the fall in global crude oil prices in mid-2014, companies asked for reducing the levy and converting it into 8-10 per cent ad-valorem. The government had changed the levy of the cess to 20 per cent ad-valorem in March 2016.

Sources said ONGC has communicated to the government that the current rate of taxes is threatening to push the firm into cash losses and will impact its planned capex.

Unless profits are made, future investments are at a risk, they said, adding ONGC fields are old and past their prime and it would be a "big, big mistake" to believe they would behave as they did a decade back without investments in pulling up recovery rates.

Sources said cutting the cess rate will make over 200 million barrel of oil equivalent of production viable at the entire industry level.

Going cheap: How ONGC compares to the world's most richly valued oil firms

State-owned Oil and Natural Gas Corporation (ONGC) is now the cheapest oil and gas company globally. Earlier this week, the company’s stock price fell below Rs 100 for the first time in 15 years. Currently, ONGC trades at 4.2 times its estimated one-year forward earnings. Most global oil and gas majors command a price-to-earnings (P/E) ratio of more than 15. Exxon Mobil and Saudi Arabian Oil Company (Saudi Aramco) have a P/E of 18.3 times and 17.3 times, respectively. While ONGC has always traded at a discount to its global peers, it has widened to record levels in recent months.

Going cheap: How ONGC compares to the world's most richly valued oil firms

“Among the global upstream peer group, it is the cheapest stock. ONGC historically has traded at a discount versus global peer group, but over the past 12 months, the discount has widened materially, and in our view, the ‘on-tap’ government selldown is the key reason,” JP Morgan analysts Pinakin Parekh and Sanket Parab write in a note.

The brokerage has a buy rating on the stock, albeit it has cut the price target from Rs 190 to Rs 172 due to a cut in earnings estimates amid weak global oil prices. JP Morgan says the stock offers attractive yields of about 8 per cent. It has identified a few other triggers for ONGC to do well.

ONGC bags all seven blocks on offer under fourth round of licensing policy

The government on Wednesday awarded Oil and Natural Gas Corporation (ONGC) all the seven blocks that were on offer under the fourth round of Open Acreage Licensing Policy (OALP). Out of the seven blocks, five are located in Madhya Pradesh, while one block each are in Rajasthan and West Bengal.

The seven blocks are spread over three sedimentary basins with resource potential of approximately 33 billion barrels of oil and oil equivalents of gas.

The latest round added another 18,510 square kilometres (sq km) to the total exploration area of the country.

Union Petroleum minister Dharmendra Pradhan said on Wednesday that bids for another 20,000 sq km area would be finalised soon as part of the fifth round.

The first four rounds are expected to generate an investment of approximately $2.35 billion over the next three to four years in exploratory work alone.

"During the last two fiscals, the government has successfully bid out 1,40,000 sq km for exploration and production. In addition, over these years, we have improved our policies multiple times," Pradhan said. According to reports, only 90,000 sq km was under exploration till 2018.

During the first round of OALP, 55 blocks were awarded followed by 32 blocks during the second and third round, for which blocks were awarded jointly.

Early this week, finance minister Nirmala Sitharaman had unveiled a National Infrastructure Pipeline (NIP) of Rs 102 trillion, out of which energy sector is expected to contribute about 24 per cent of the projected capital expenditure in infrastructure. "We will see more investment than said in that plan for petroleum and natural gas," Pradhan said.

He added that the major change in government policy was the concept of revenue maximisation to production maximisation. The current rounds provide more sops to the investors including reduced royalty rated and uniform licensing, following a revenue sharing model.

Speaking about technology infusion, Pradhan said, “Technology, science has seen tremendous progress in recent times. Our oil and gas companies are adopting digitisation, new technologies for leapfrogging growth.”

The cumulative exploratory work commitment after the four rounds of OALP comprise 29,270 LKM of 2D seismic survey, 43,272 sq km of 3D seismic survey, 369 exploratory wells and 290 core analyses to establish shale resources.

The four OALP bid rounds conducted till date have been a success with total of 94 blocks awarded covering an area of 1,36,790 sq km to leading E&P companies. The operators of these blocks have since then initiated petroleum exploration activities or are in final stages of obtaining Petroleum Exploration Licenses (PELs).

The fifth cycle of submitting Expressions of Interest (EoIs) closed on November 30, 2019 while the sixth cycle of EoI is open till March 31 this year.

ONGC gets cracking at Panna-Mukta field, saves Rs 1 cr in shipping costs

State-owned Oil and Natural Gas Corp (ONGC) has begun an exercise to shed excess cost at the Mumbai offshore oil and gas fields of Panna-Mukta, whose control it regained after two and half decades and has already saved Rs 1 crore in the shipping cost.

ONGC has changed the contract for bringing oil produced from the fields lying in the Arabian Sea to land, resulting in saving of about $5,000 per day, sources with direct knowledge of the development said.

It is expecting an upside in production too after a re-appraisal.

Sources in the know said the previous operators, Shell India and Reliance, had engaged a floating storage and transportation vessel from Mercator Ltd for shipping oil.

Soon after taking over the field last month, ONGC changed the shipper to state-owned Shipping Corporation, resulting in saving of about $5,000 per day, they said adding the saving totals to Rs 1 crore-plus.

Sources in the know said the company will lay a small undersea pipeline soon to completely do away with the requirement of hiring ships for transporting oil to land.

ONGC had originally discovered the Panna-Mukta and Tapti (PMT) oil and gas fields in the Arabian Sea off the Mumbai coast in the early 1990s. These were, however, taken away from the company and in 1994 awarded to a consortium of US energy giant Enron and Reliance Industries. ONGC as a government nominee was given 40 per cent back-in rights.

Enron during its bankruptcy was taken over by BG Group of UK in 2003. BG Group’s interest was subsequently taken over by Shell in 2016.

The 25-year production sharing contracts for the PMT fields expire this week and Reliance and Shell had decided not to seek an extension for Panna-Mukta fields, resulting in them being reverted to ONGC on December 21, 2019.

Reliance and Shell-owned BG Exploration and Production India held 30 per cent stake each in PMT.

The Tapti fields had ceased production earlier in 2016 and the Tapti process platform facilities were handed over to ONGC (Government of India nominee) in 2016.

Sources said ONGC sees an upside in oil and gas production from the Panna-Mukta field which it will firm up after doing a reappraisal of the reserves.

The fields produce about 10,000 barrels of oil per day and 4 million standard cubic meters per day of natural gas.

ONGC lists $300 million debt issue on India International Exchange

State-run Oil & Natural Gas Corporation (ONGC) has listed its $300 million issue on the Global Securities Market of India International Exchange IFSC (India INX). The issue was made under ONGC's Euro medium-term note (EMTN) programme.

In a statement, India INX said the issue comes with a coupon rate of 3.375 per cent and is due in 2029. The exchange further said that ONGC has established its $2 billion medium-term note (MTN) programme on the exchange's Global securities Market and the $300 million is its maiden issue under the programme.

An EMTN programme is an uncommitted facility and any drawdown thereof under this document would be subject to funding requirements.ONGC is among a select set of companies the world over to set up an EMTN programme and India’s first oil and gas public sector integrated energy major to do so.

"We are happy to be part of India INX at IFSC, GIFT City to list ONGC’s maiden issue of $300 million under its EMTN programme of $2 billion on the Global Securities Market of India INX, which offers an opportunity to reach out to international investors to raise funds in a similar manner in other international markets, in addition to providing a single-window facility for compliance reporting," said Shashi Shanker, Chairman and MD, ONGC.

V Balasubramaniam, MD and CEO, India INX added, "The $2 billion EMTN programme further attests the regulatory robustness and transparency on offer at India INX. This will help further the Government of India’s vision of making IFSC a hub for Indian and global issuers and investors and reiterates our world class listing practice.”

ONGC, ExxonMobil tie up for oil exploration in India; plan to bid for OALP

Global energy major ExxonMobil and state-run Oil and Natural Gas Corporation (ONGC) have tied up for oil exploration in India. The two companies will jointly bid for the upcoming Open Acreage Licensing Policy rounds.

The two oil majors signed a memorandum of understanding (MoU) on Tuesday. This will enable them to to “undertake joint technical studies and cooperate in frontier areas like deepwater and other Petroleum Exploration Licence (PEL) blocks of ONGC in the East and West coast and open acreages for joint bidding”.

“A lot of foreign companies are showing faith in India and its move towards a gas-based economy. This includes big players like Total, Shell, and ExxonMobil,” said Petroleum Minister Dharmendra Pradhan at the CERAWeek in Delhi. The MoU was signed on the sidelines of the CERAWeek in Delhi by ONGC Director (Exploration) R K Srivastava and ExxonMobil Chief Executive Officer-South Asia, William P Davis.

The work under the MoU will be carried out in three phases. This will lead to a joint technical study for potential collaboration areas.

“We welcome the opportunity to work with ONGC and apply our collective expertise to be an even bigger part of India’s bright energy future,” said Michael Deal, vice-president-Asia Pacific, ExxonMobil.

On Monday, ExxonMobil had signed a pact with Indian Oil Corporation to expand its liquefied natural gas business initiatives in India.

ONGC yet to get complete legal ownership of GSPC's KG Basin gas block

Two years after acquiring an 80 per cent stake in Gujarat State Petroleum Corporation’s (GSPC) KG Basin gas block, state-run Oil and Natural Gas Corporation (ONGC) is yet to get complete legal ownership of the block.

Two senior company executives said “the production sharing contract (PSC) of the block is yet to be transferred to ONGC”. The deal was completed in August 2017, for which ONGC paid about ~7,738 crore.

The operatorship (the right to operate a well, field, or other oil source) continues to be with GSPC, according to the website of the Directorate General of Hydrocarbons (DGH), the sector’s regulator.

Different reasons are being given for the delay. “I would not like to say the contract is not yet with ONGC, but certain financial adjustments have to be made,” said a source. Another official said ONGC had not done “proper documentation” for the approval.

There is also a lack of clarity on who will approve the change. While a government official said the required amendment in PSC would be done by the petroleum ministry, an ONGC executive said an empowered group of secretaries belonging to different ministries would clear the change.

GSPC has already used the consideration received from ONGC for partial pre-payment of its term loan, according to GSPC’s 2017-18 annual report. The Gujarat-based company still holds 10 per cent participating interest in the block as non-operating joint venture partner.

ONGC is doing fracking in the block and a report on that will be submitted to the DGH in three months. This will pave the way for a new field development plan.

J N Singh, managing director, GSPC, said: “Every right related to the block has been transferred and the deal has been done. If at all some issues are there, it will just be a formality.”

Until the PSC is transferred, the proceeds from the block are unlikely to be part of ONGC’s books, according to industry experts. An ONGC executive, however, refused to comment on this. “ONGC is bearing the block’s expenditure,” said another executive.

“This should be pursued by the exploration division and executive committee without any kind of delay as the issue is about complete legal ownership of the block,” said R S Sharma, former chairman and managing Director, ONGC.

In December 2016, ONGC agreed to buy 80 per cent interest of GSPC, along with operatorship rights, in the Deen Dayal West (DDW) gas field in Block KG-OSN-2001/3 in the Bay of Bengal for $995.26 million. It had also reportedly agreed to pay part consideration of $200 million towards acquisition rights for discoveries other than DDW field in the block.

ONGC adopts Energy Strategy 2040; targets doubling of oil, gas production

State-owned Oil and Natural Gas Corp (ONGC) has set a target to double oil and gas output from its domestic and overseas fields and expand its refining capacity three-fold alongside diversification into renewables in a new vision document for 2040, its Chairman Shashi Shanker said.

ONGC Energy Strategy 2040 envisions the company as "A diversified energy company with a strong contribution from non E&P business; 3x revenues and about 5-6x market capitalisation," he said.

The firm produced 24.23 million tonnes of crude oil in the 2018-19 fiscal year and 25.81 billion cubic metres (bcm) of natural gas from its domestic fields. Another 10.1 million tonnes of oil and 4.736 bcm of gas were produced from its overseas assets.

It had a turnover of Rs 1,09,654 crore and a net profit of Rs 26,715 crore in the year ended March 31, 2019. As on August 16, it had a market capitalisation of Rs 164,458 crore.

In the company's latest annual report, Shanker said the ONGC board recently approved the business roadmap for the company and its other group entities -- 'ONGC Energy Strategy 2040'.

The 'Energy Strategy 2040' entails ONGC achieving "three times revenue distributed across exploration and production, refining, marketing and other businesses; four times current profit-after-tax (PAT), with 10 per cent contribution from non-oil and gas business; and 5-6 times current market capitalization," he said.

"The strategic roadmap envisions a future-ready organization whose growth is predicated on a few important planks: consolidation of our core upstream business (domestic and international); expansion into value accreting adjacencies in the oil and gas value chain (downstream and petrochemicals) and diversification into renewables (offshore wind) and select new frontier plays through dedicated venture fund," it said.

The document targets cumulative upstream output (local and overseas) almost doubling from current levels with 2 per cent and 5 per cent CAGR in domestic and international operations respectively.

With two 35 million tonnes per annum of oil refining capacity vested in its two subsidiaries -- HPCL and MRPL, ONGC is targeting to raise this capacity to around 90-100 million tonnes. Also, expansion is petrochemicals will be prioritised.

Besides, ONGC plans to make investments in renewables energy sources with a target to create 5-10 gigawatts portfolio with a focus on offshore wind power.

ONGC has been under pressure to reverse the falling output from its aging fields, where natural decline has set in. It is investing heavily to arrest the domestic fall while at the same time aggressively look for assets overseas.

"The strategic roadmap also looks to create long term optionality through investor play (venture fund corpus of about $1 billion) in select frontier themes such as clean energy, artificial intelligence (AI) or reservoir/field services technology," it said.

In upstream oil and gas exploration and production (E&P), priority would be accorded to select difficult plays (high-pressure high temperature, ultra-deepwater) with high-prospectivity and low stretch from current core, development of in-house enhanced oil recovery solutions to maximize legacy production, exploration-focused technology partnerships, dedicated marginal fields unit as well as building decommissioning capabilities.

Internationally, focus shifts to plays with volume in host regimes with a positive government-to-government relationship with India to secure stable energy long-term supplies, the annual report said.

ONGC said there was significant room for deriving operational synergies between HPCL and MRPL through integrated crude sourcing, centralised trading, capability and infrastructure sharing.

Expansion in petchem is based on the robust demand of outlook of 8-9 per cent CAGR for the country as well as ONGC's significant presence in the market through its subsidiaries.

CCI dismisses abuse of dominance charge against ONGC

The Competition Commission of India (CCI) has dismissed a complaint against ONGC alleging abuse of dominant position with regard to certain contractual provisions for hiring offshore support vessels.

The fair trade regulator had ordered a probe against Oil and Natural Gas Corporation Ltd (ONGC) in June 2018 after prima-facie finding the oil major in violation of competition norms.

The complaint was filed by Indian National Shipowners' Association (INSA), a representative body of various ship owners.

To support its offshore exploration and production activities, ONGC requires offshore support vessels (OSV). In this regard, it issues tenders for OSV suppliers with detailed technical eligibility requirements and special contract conditions (SCC), among others, collectively referred to as CHA.

INSA had complained about the Charter Hire Agreement (CHA) of ONGC which had a particular clause that gave unilateral right to the state-owned firm to terminate the agreement. The said clause was one-sided and abusive in nature, INSA alleged.

By terminating the agreement unilaterally, ONGC violated Section 4 of the Competition Act which pertains to abuse of dominant position in the relevant market, INSA alleged.

For the case, CCI considered "market for charter hire of OSVs in the Indian EEZ (Exclusive Economic Zone)" as the relevant one and found that ONGC was dominant in it.

The prevailing circumstances also need to be taken into consideration to establish whether the firm abused its dominant position or not, CCI said.

It is an undisputed fact that the crude oil prices started falling drastically from mid-2014, from over USD 100 per barrel to under USD 30 per barrel by January 2016, which affected oil companies worldwide, including ONGC, the fair trade regulator said.

With drastic fall in oil prices, ONGC in April 2016 issued de-hiring notice to 27 vessels by invoking the unilateral termination clause.

Regarding invoking of the clause, CCI said that there was an objective necessity to bring down the costs in new market circumstances and the termination was driven solely by this necessity and obligation.

Besides, the clause was invoked by ONGC in an exceptional situation which was not an ordinary change of circumstance, it added.

The clause "which gives unilateral right of termination without assigning any reasons to ONGC, in itself is not found abusive given the disproportionate risk that ONGC has to bear in case of such termination by the OSV, especially when the Commission has found, in the given facts and circumstances, that the invocation of such clause was not in bad-faith", CCI said in an order dated Aug 2.

The regulator further said that had it been found that ONGC invoked the clause frequently in order to make illegitimate gains at the expense of the other contracting party, the Commission may have had the occasion to look at this case differently.

No such situation seems to exist in the present case, it added.

Accordingly, the "Commission is of the considered view that in the present case the conduct of ONGC does not tantamount to an abuse of dominant position within the meaning of Section 4 of the Act", CCI said and directed the case to be closed.

ONGC gets Environment Ministry's nod for Rs 240 crore project in Assam

State-owned Oil and Natural Gas Corp (ONGC) has received the green nod to drill six development wells in Assam at an estimated cost of Rs 240 crore.

The Union Environment Ministry has given the environment clearance for six development wells in five mining lease blocks in Jorhat and Golghat districts, according to an official document.

The company had sought permission for drilling 12 development wells but it received clearance for six wells at present.

The clearance, which is subject to compliance of certain conditions, has been given after taking into consideration the recommendation of a green panel.

The total mining lease area of Jorhat and Golaghat districts is 32.116 sq km and 120.5 sq km, respectively. The total project cost is pegged at Rs 240 crore.

ONGC said the proposed project aims to enhance reliable hydrocarbon supplies, which will bring economic benefits and provide indirect employment opportunities to the local people and also benefit the area by way of improvement in existing infrastructure.

The company has obtained the first stage forest clearance for the project.

ONGC is the largest producer of oil and gas in the country, contributing 72.4 per cent of the crude oil and 48.5 per cent of the natural gas production. At present, over 78 per cent of India's oil requirements are being met through imports.