Cash reserves sliding, ONGC trims exploration and growth works

A gradual fall in money reserves at state-owned ONGC, a key participant in India’s crude oil and pure gasoline manufacturing panorama, has coincided with the upstream main being compelled to pare investments in exploration and growth. The development, which has been sharply pronounced since FY18, comes at a time when the Centre is searching for to spice up home manufacturing to scale back dependence on imports.
ONGC’s money reserves are down from Rs 10,799 crore on the finish of FY14 to Rs 968 crore on the finish of FY20, largely on account of acquisitions of controlling stake in Hindustan Petroleum Corporation Ltd (HPCL) and majority stake in Gujarat State Petroleum Corporation’s (GSPC) KG Basin gasoline block in FY18. The upstream utility’s expenditure on exploratory wells too fell sharply from Rs 11,687 crore in FY14 to Rs 4,331 crore in FY20, based on firm knowledge.
Expenditure on growth wells or wells drilled in fields that have already got confirmed reserves of oil and gasoline has been comparatively steady, however has seen a decline. This fall has occurred throughout the identical time interval the place ONGC’s annual finance prices have jumped from Rs 0.36 crore in FY14 to Rs 2,824 crore in FY20. ONGC had raised debt of round Rs 24,881 crore to finish the Rs 36,915-crore acquisition of the federal government’s 51.1 per cent stake in HPCL and had raised Rs 7,560 crore to finish the acquisition of an 80 per cent stake in GSPC’s KG Basin gasoline block.
ONGC accounts for about 63 per cent of the home crude oil manufacturing and over three-quarters of the home gasoline manufacturing. It continues to be an important participant within the nation’s crude oil and pure gasoline output panorama, having received seven of the 11 hydrocarbon blocks supplied underneath the fifth spherical of bidding underneath the Open Acreage Licensing Policy (OALP), with state-owned Oil India Ltd (OIL) bagging the opposite 4 blocks on provide.
A supply near the corporate administration informed The Indian Express that ONGC had incurred extra capital expenditure on re-development of plant, property and tools to spice up manufacturing on the expense of expenditure on exploratory wells.

The supply famous that ONGC realised that there was no extra “easy oil” to be found within the nation and that it needed to work on investments in logistically troublesome areas which entail larger infrastructure prices.
ONGC didn’t reply to emailed requests for remark.
Experts famous ONGC was set to repay most of its debt in FY22 and this may seemingly result in a rise in its money reserves, which might even be boosted by the rise in international crude costs. FY15 was an irregular yr, when money reserves had fallen sharply as the corporate’s accounts receivables rose amid excessive crude oil costs however recovered within the subsequent fiscal.

“ONGC’s cash reserves had gone down and that should reverse now that they are repaying their debts,” stated an analyst who didn’t want to be quoted. With a restoration within the worth of crude oil and pure gasoline, ONGC would have the ability to generate enough money to assist its capital expenditure, the analyst added.
ONGC’s complete borrowings fell from Rs 21,593.6 crore on the finish of FY19 to Rs 13,949.1 crore on the finish of FY20.
Analysts stated that ONGC is simply trying to preserve its current manufacturing ranges as reserves from current wells are happening. It is vital that ONGC maintains a reserve substitute ratio above one. A substitute reserve ratio signifies if the corporate has added to its current reserves as a lot because it has extracted for manufacturing and that the corporate’s reserves will have the ability to maintain its current degree of output.
While ONGC has maintained a reserve substitute ratio of over 1 for 14 consecutive years, the state-run utility’s complete crude oil and pure gasoline manufacturing have been declining. ONGC’s complete crude oil manufacturing in FY20 was 19.2 million tonnes, falling from about 21.1 million tonnes in FY16, as its expenditure on exploratory and growth wells has fallen.
While ONGC’s expenditure on exploratory wells has declined by a mean of 13.7 per cent each fiscal between FY14 and FY20, OIL has elevated the identical by a mean of 8.8 per cent throughout the identical interval.
OIL’s expenditure on growth wells has additionally elevated by a mean of seven per cent throughout this era, whereas that of ONGC has declined by 1.9 per cent each fiscal from FY14 to FY20.