ONGCís cash reserves deplete 24% in FY14, investments to be hit

May 04 2014, 23:26 IST
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ONGCís cash reserves stood at a record Rs 25,000 crore at the end of FY11 ONGCís cash reserves stood at a record Rs 25,000 crore at the end of FY11
SummaryONGCís cash reserves stood at a record Rs 25,000 crore at the end of FY11

meet the capex needs.

In the first nine months of FY14, the firm shelled out Rs 40,182 crore to subsidise government oil marketing companies for selling fuel below market cost. Given that it might pay another Rs 14,000 crore for the fourth quarter, the total subsidy burden on ONGC for the full year would add up to Rs 54,182 crore. It would be nearly 10% more than Rs 49,421 crore it paid last year.

The countryís flagship company ONGC is facing rough weather to sustain output from its existing fields, in addition to monetising new assets. While the oil business is hardly profitable, the present margin of $0.58/million metric British thermal units (mmBtu) from the gas business is not sufficient to support big investments in exploration. (The effective margin after taxes and dividend from gas business is just $0.21/mmBtu).

Now, a silver lining is the expected increase in gas prices as per Rangarajan formula. Petroleum minister Veerappa Moily said last week that the price would come into effect ó with retrospective validity from April 2014 ó as soon as the election code of conduct is lifted less than a fortnight from now.

For crude oil sales, the company needs a realisation of $65-70/barrel to keep oil flowing from old fields and develop new ones. But, after sharing subsidy burden (which means giving a discount of over $60/barrel to oil marketing companies), its realisation drops to a little above $40 a barrel. During April-December FY14, ONGC sold every barrel of crude oil produced at an average of $106.7. However, realisation came down to $43.75 a barrel after subsidy share, and considering a cost of $40-41 a barrel, the net realisation is just $2-3/barrel.

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