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ONGC cash reserves at record low, spend on exploration dips

Sandeep Singh, Anil Sasi
ONGC’s cash and balances dipped to touch a record low of Rs 504 crore in March 2019, down from Rs 1,013 crore in March 2018 and Rs 9,511 crore in March 2017 and Rs 9,957 in March 2016.

The depleting cash and other bank balances of ONGC Ltd, India’s main state-owned oil explorer that accounts for over 60 per cent of the country’s crude oil production, finds a reflection in the overall capex spends of the upstream petroleum major.

ONGC’s cash and balances dipped to touch a record low of Rs 504 crore in March 2019, down from Rs 1,013 crore in March 2018 and Rs 9,511 crore in March 2017 and Rs 9,957 in March 2016. While this slide in balances is precipitated by two deals involving ONGC’s stake buys in downstream oil marketing company Hindustan Petroleum Corporation Ltd (HPCL) and Gujarat-based GSPC that dented the former’s cash reserves, the government has maintained that ONGC has “sufficient lines of credit from banks and strong access to capital markets” to maintain its working capital requirements.

A closer examination of the data for the last six years, however, shows that ONGC’s expenditure on exploratory wells has almost halved from Rs 11,687 crore in the year ended March 2014 to Rs 6,016 crore in the year ended March 2019.

The expenditure by ONGC on developmental wells has, however, remained steady over the last six years.

This decline in exploratory expenditure comes alongside a steady decline in domestic crude oil production. Data shows that domestic crude oil production has consistently declined between FY12 (38.09 MMT) and FY18 (35.68 MMT).

The expenditure by ONGC on developmental wells has, however, remained steady over the last six years. While the expenditure in the financial year 2013-14 amounted to Rs 8,518 crore, that in the last year stood at Rs 9,362 crore.

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Under the investments head too, there was a marginal slip (non-current investments) down to Rs 84,882 crore in 2018-19 from Rs 85,731 crore in 2017-18. ONGC has stated on record that its exploration and production business “remains the predominant cash-generator” and thereby, the decline in spend is exploratory wells is being seen as a negative.

Apart from ONGC, there are two other key sources of domestic crude — production from state owned Oil India Ltd and the output from the PSC Fields (production sharing contract field operated by private players), which together accounted for about 40 per cent of domestic crude output last fiscal.

With domestic crude output flagging on account of aging fields and lack of any major new discovery, imported crude has consistently accounted for over 80 per cent of the country’s oil requirements. The trend runs counter to the government’s stated aim to cut oil import dependence to 67 per cent by 2022.

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The overall capital expenditure of state-owned oil firms, ONGC, as well as Indian Oil Corporation, GAIL India Ltd, Bharat Petroleum Corp Ltd (BPCL), HPCL, Mangalore Refineries and Petrochemicals Ltd and their subsidiaries is projected to hit a four-year low of Rs 93,693 crore in oil and gas exploration, refining and petrochemicals in FY’20. Oil PSEs had invested Rs 94,438 crore in the year ended March 31,2019, lower than the Rs 132,003 crore invested in 2017-18, Rs 104,426 crore in 2016-17 and Rs 97,223 crore invested in 2015-16, according to Ministry estimates and budget numbers.

The decline is even more worrying considering that it comes despite the upswing in refining capex due to the BS-VI fuel upgrades that downstream petroleum majors have to mandatorily undertake, alongside greenfield and brownfield expansions driving up capex, analysts said.

At a review meeting in September held by the Finance Ministry in Delhi, ONGC is learnt to have declared a capex plan of Rs 32,921 crore for FY20, of which its capex in the first five months of the fiscal (till August 2019) was just 27 per cent (Rs 8,777 crore) of the total planned expenditure while for Indian Oil Corporation, of its capex plan of Rs 25,083 crore for the full fiscal, Rs 8,173 crore (or 31 per cent) had been spent.

ONGC had said that the funding requirement of Rs 36,915 crore for acquiring 51.11 per cent equity shares in HPCL was met through internal funds of Rs 12,034 crore and balance Rs 24,881 crore was borrowed from commercial banks. The funding requirement of Rs 7,560 crore for Gujarat State Petroleum Corporation’s acquisition was met by way of ‘borrowing against term deposits’. The outstanding loan of ONGC as on March 31, 2019 was Rs 21,594 crore, primarily on account of these two buys.

Even though oil and gas is a capital-intensive enterprise, the Ministry has gone on record to state that “ONGC has maintained its activity level and no activity has been curtailed during 2018-19, due to shortage of funds”.

“The acquisitions (HPCL and GSPC) were made to add more value and growth to the business of ONGC and considering the potential benefit from vertical integration across the oil and gas value chain and the synergies arising out of acquisition of a downstream oil refining and marketing company... ONGC has sufficient lines of credit from banks and strong access to capital markets to maintain the working capital requirements,” a Ministry official said.