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AK Banerjee, Director (Finance), ONGC

17 Feb 2014

ONGC has been in the news recently over its plans to buy stake in the Indian downstream major, Indian Oil Corporation. The E&P major is also facing uncertainty over its share of subsidy to offset losses incurred by oil marketing companies. Talking to Neeraj Dhankher, ONGC’s Director (Finance), AK Banerjee outlines various facets of the company’s future plans. Excerpts:

Have you finally decided on how much stake will ONGC purchase in IOC? It is learnt that ONGC may be looking at buying anything between 5 and 10 per cent.

IOC is not a bad buy at this point of time as per the market. I cannot comment on the government’s decision, but if it is offered to us, then it is not a bad buy. IOC’s fundamentals are strong. They have huge assets. At that price if you can get a portion of their equity, it is not bad at all. But there has been no official communication from the government so far. Everything is based on what we have read in the media. We will take a view once we get an official communication. The plan will be made as per the offer. Only thing is that we do not want any lock-in period. This year we are expecting to close with around `4,000 to `5,000 crore cash. Part of this shall be used for acquiring a stake in IOC, if and when it materializes. In addition, we will also have an upside due to the proposed gas price revision from April 2014.

What is your capex for 2014-15?

It is expected to be around `36,000 crore.

There has been a lot of development for ONGC as far as drilling in Krishna Godavari basin is considered. As per reports, the company has lined up investments worth $9 billion to drill more wells in block KGDWN- 98/2. What is the update on that?

Investment plans will take some time to materialize. Only recently have we submitted the declaration of commerciality (DoC). A field development plan will now need to be submitted. It will take at least six to seven months and only then will the process start. Some appraisal wells are being drilled. Once they are completed, we will have to wait for the next stage. The investment figure of $9 billion is only a rough estimate. Unless we prepare the FDP, we won’t be able to comment on the investment levels.

Please elaborate on your LNG plans. Are you looking to buy any stake in an existing LNG terminal?

We do not have any plans yet for picking up a stake in an existing LNG terminal. However, we are thinking of setting up an LNG plant at Mangalore. We are looking to be firmed up. It can be anything between 2.5 and 5 mmt. It will not be necessarily for Mozambique gas but that is still an option. Different options are being examined.

What is the progress on drilling for shale oil and gas in the Cambay basin?

Drilling is going on. It is premature to say anything now. Earlier, as an R&D pilot, we had drilled some wells with Schlumberger and there we found some shale. That’s why we are keen to take it up further. We have planned to drill 10 wells this year and another 20 wells next year. The capex for next year is around `500 to `600 crore.

ONGC has been quite vocal on reducing its subsidy burden. What are the main issues?

We are hardly left with any margins after accounting for subsidies to oil marketing companies. We have requested the government that we should be able to hold on to at least $65 per barrel so that we can reinvest in the oil and gas sector. The petroleum ministry has been quite supportive. They have understood that this is very essential. The proposal is being discussed with the finance ministry.

How much dividend is ONGC expected to share this year?

We are maintaining almost the same level of dividend as last year, at least that is what we are anticipating but it will depend on the board decision. Last year, we had paid an interim dividend of 180 per cent and final dividend of 10 per cent. This year, the interim dividend is expected to be 185 per cent, but the final decision will be taken by the board. at Mozambique as a gas source, along with other options. We have already signed a memorandum of understanding (MoU) with Mitsui in this regard. The capacity is yet to be firmed up. It can be anything between 2.5 and 5 mmt. It will not be necessarily for Mozambique gas but that is still an option. Different options are being examined.

What is the progress on drilling for shale oil and gas in the Cambay basin?

Drilling is going on. It is premature to say anything now. Earlier, as an R&D pilot, we had drilled some wells with Schlumberger and there we found some shale. That’s why we are keen to take it up further. We have planned to drill 10 wells this year and another 20 wells next year. The capex for next year is around `500 to `600 crore.

ONGC has been quite vocal on reducing its subsidy burden. What are the main issues?

We are hardly left with any margins after accounting for subsidies to oil marketing companies. We have requested the government that we should be able to hold on to at least $65 per barrel so that we can reinvest in the oil and gas sector. The petroleum ministry has been quite supportive. They have understood that this is very essential. The proposal is being discussed with the finance ministry.

How much dividend is ONGC expected to share this year?

We are maintaining almost the same level of dividend as last year, at least that is what we are anticipating but it will depend on the board decision. Last year, we had paid an interim dividend of 180 per cent and final dividend of 10 per cent. This year, the interim dividend is expected to be 185 per cent, but the final decision will be taken by the board.