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ONGC sitting on a pile of cash is a myth: Sudhir Vasudeva

Ajay Modi & Jyoti Mukul / New Delhi 31 Jul 12 | 12:41 AM

Despite stagnant domestic production and challenging geopolitics, Oil and Natural Gas Corp has a plan to produce 130 million tonnes (mt) oil equivalent by 2030. A mounting subsidy burden could make things difficult, though. In an interview with Ajay Modi and Jyoti Mukul, ONGC Chairman and Managing Director Sudhir Vasudeva says he is an “eternal optimist". Edited excerpts:

How do you plan to take forward the Perspective Plan 2030, especially since the company is facing production challenge in domestic as well as overseas operations?
We have now done a very comprehensive exercise. We hired Mckinsey and it acted as a facilitator. A team of ONGCians, those with 15 years experience, who know our business and have at least 15 more years to retire so that they are there when this plan is being implemented, oversaw the whole exercise while being steered by the functional directors. We discussed how we should define growth and what should be our aspirations. One way of seeing growth was from the point of view of market cap, turnover and net worth. However, we did not go for this since our vision is to be a leader in India with dominant global presence through sustainable development. We are contributing 73 per cent of the country’s oil production and 50 per cent of the gas production. If we have to maintain this position, we will have to grow in excess of three per cent,while historically we have grown at two per cent. Global players like Exxon (US) and Shell (The Netherlands) are growing at two-three per cent, while Petrobras (Brazil) is growing at seven per cent. In India, oil and gas demand is projected to grow at three per cent. If we have to meet this demand, we have set a growth rate of four per cent which we believe is achievable.

How will you achieve the 3 per cent plus growth in production?
To maintain current production level from domestic sources, we have to monetize 300-350 mt of already discovered reserves fast and aggressively. There are five to six such areas where we have yet to find oil but we have indication that we can find 400-450 mt here.

However, to get the balance 60 mt by 2030, the contribution of OVL has to be six times of what it is today. In addition, we cannot keep our eyes close to growing importance of alternative fuels. We desire that 30 per cent our topline should come from alternatives or non-E&P business. With all these, doubling our production and trebling our revenues, our market cap should be four times from what it is now.

What will be the contribution of ONGC Videsh (OVL) in this growth?
Our production has to increase from 62 to 130 mt by 2030. This is not possible only through domestic exploration and production. The contribution of OVL has to be six times what it is today. In addition, we cannot keep our eyes closed to the growing importance of alternative fuels. We desire that 30 per cent our top line should come from alternatives or non-E&P (exploration and production) business. With all these, doubling our production and trebling our revenues, our market cap should be four times from what it is now.

OVL has lately seen its production dipping, so how do you think its contribution will grow?
We have problems in Sudan, Syria and Libya. In Libya, problem is less since it was only in the exploration phase and, therefore, there is no loss in production. In Sudan, there is loss of production which began in July last year after Sudan was split into North and South.  Forty per cent of the production was coming from North while 60 per cent from South. However, North has all the evacuation and processing facilities. North is seeking around $30 per barrel transition fee while South is offering few cents. The African Union is trying to mediate between the two. There is no production from South Sudan, but North is limping back to production since April. We are trying to work out some alternatives in the South. The government there is mulling over the option of pipeline. So, at least there is some production coming from Sudan. However, in Syria, where Shell is the operator, a force majeure has been declared due to EU (European Union) sanctions. It’s difficult to say anything on Syria till EU sanctions remain.

In Iran, OVL did not make further investment due to US sanctions? Has Iran set some deadline to go ahead with the development of Farzad?
It’s not that investment in Iran did not take place due to sanctions. We had made discoveries in Farzad-B and development had to take place. One can understand their psyche and the kind of pressure they are in due to sanctions. This is their one source of revenue and so the pressure comes. We are trying our best to make progress. Discussions are still going on.

Even in Russia, OVL is reported to be facing problems with Sistema on valuation for a proposed merger between JSC Bashneft and OAO RussNeft with Imperial Energy?
A kind of protracted discussion has been going on between us. Anyone can ascribe any value to Imperial. But if it’s being valued at $ 500 million, we are not ready to go ahead. But this is all part of discussion. We have to do valuation of their property and they have to do valuation of ours and only when we both agree on valuations that one can move forward.

Has OVL abandoned operations in South China Sea after China raised objections?
The entire issue has been unnecessarily blown out of proportion. This is a block given to us by Vietnam and all along we knew it was Vietnamese property and they will provide us all the support which they did. We had to relinquish Block 127 and 128 since we did not find good prospects. There was a dispute between government of China and Vietnam. The Chinese government did not approach OVL or ONGC. We have learnt that Vietnam is offering additional information on the blocks. If we need to do explore more, we will see.

Isn’t it becoming increasingly difficult to operate and even acquire assets outside India?
It is not difficult and not easy also. In 2006, we acquired Imperial. By 2008, global prices went through the roof and then it came down. During this period of uncertainty nothing much could be done. After this, we were able to do Satpayev and Carabobo. We are working on a few deals and are hopeful of sealing some.

You have again announced a pact with China. It was also done earlier but not much collaboration activity has been seen.
Last time, OVL had signed an agreement. This time China wanted to sign it with ONGC so it is more broad-based. It encompasses everything-upstream, mid-stream and downstream and opportunities in most countries. We will set up a joint team which will scout for opportunities. In Sudan and Syria, we are working with Chinese companies. Our experience of working with them is good.

In the immediate what can be done to compensate loss coming from Sudan and Syria?
It is not possible to increase production from any of the existing assets. Production from Carabobo is expected to come in 2013. Gas production from Sakhalin has started. So with new production some gap will get filled.

Are you looking at shale gas opportunities through OVL?
We are looking at opportunities in both conventional and unconventional resources.

When are you planning OVL listing?
As per the guidelines of department of public enterprises guidelines, OVL is eligible for listing. The government is also of the view that listing will give OVL access to money for acquisitions. We had hired some consultants to understand the process. It was also discussed briefly within the ONGC board which has asked us to do some more study. We are studying what other alternatives can be taken if the purpose is just to raise funds.

Is it the best time to list considering OVL’s production issues?
Yes, this is also an issue we have to see before proceeding.

Coming back to ONGC, by when do you think you will be able to outsource development of coal bed methane blocks?
It is difficult to give any timeline. The business model is being discussed under a consultant. We have not been able to make requisite progress in the last several years. It is better to spread the risk among partners and take advantage of everyone’s strong points. We had invited expression of interest to which three to four companies have responded. We are yet to decide if a controlling stake is to be offered or just some equity participation is suitable.

How is the progress on the non-exploration and production side of ONGC business?
We are very hopeful of commissioning our first unit (363MW) in Palatana (Tripura) by middle of August and the second unit will be ready three months after that. For LNG terminal, we had signed a memorandum of understanding with Mitsui for LNG business under which we are studying the import of LNG as well as setting terminals. If it makes commercial sense for us we can join GAIL or Petronet Ltd.

Isn’t subsidy sharing with oil marketing companies hampering business?
I am an eternal optimist. We should get proper price on crude oil at least to continue our expansion projects. Last year’s gross billing was $117 plus a barrel while we got only $54.7 per barrel. Our FY12 cost of production was $45. This year will be $47 so we are left with $8 at $55 realisation. With production being stagnant and higher production cost how can we continue? This year’s outlay is Rs 33,000 crore. We cannot generate this with the existing margins, implying we will have to dip into our surplus and reserves. Everybody is talking that ONGC is sitting on a big pile of cash which is a big myth.

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