ONGC TO CUT OPS COST AS CRUDE SLUMPS TO 12-YR LOW

THE OIL PSU LOSES RS 900 CR IN REV­ENUE ON EV­ERY $1 PER BAR­REL DROP IN OIL PRICE

Resource Digest - - NEWS -

With oil prices slump­ing to 12- year low, state-owned Oil and Nat­u­ral Gas Corp (ONGC) plans to cut op­er­a­tional cost by at least 10 per cent by pri­ori­tis­ing ac­tiv­i­ties and putting off the less im­por­tant ones till the fu­ture.

ONGC plans to hire a con­sul­tant to sug­gest cost cuts and con­trol­ling op­er­at­ing ex­pen­di­ture as Brent fall­ing to $31 per bar­rel al­most equals the com­pany’s cost of pro­duc­tion of ev­ery bar­rel of crude oil, sources with di­rect knowl­edge of the de­vel­op­ment said.

The com­pany’s cost of pro­duc­ing ev­ery bar­rel of crude oil is $36 and af­ter in­clud­ing re­turn on in­vest­ment as well as taxes and levies, the cost comes to $51.52 per bar­rel.

The slump in oil prices to a 12-year low will mean that ONGC pays less roy­alty and as­sum­ing the govern­ment low­ers its Rs 4,500 per tons bur­den of cess, the cost of pro­duc­tion will come to about $30 per bar­rel.

This com­pares to re­al­i­sa­tion of $30-32 per bar­rel in the cur­rent quar­ter, just about squar­ing off the cost. Sources said the com­pany has al­ready ini­ti­ated mea­sures to cut avoid­able ex­pen­di­ture and is putting money only in pri­or­ity tasks or ac­tiv­i­ties needed to sus­tain its oil and gas ex­plo­ration and pro­duc­tion. There will be no cut in cap­i­tal ex­pen­di­ture in oil and gas projects as such in­vest­ment will help the com­pany sus­tain or in­crease out­put, they said. The drop in in­ter­na­tional prices has also re­sulted in a cor­re­spond­ing drop in oil­field ser­vice cos, which the com­pany wants to cap­talise on and con­tinue ex­plo­ration and de­vel­op­ment work.

Sources said ONGC is un­likely to cut capex but only look at trim­ming its op­er­at­ing ex­pen­di­ture by shed­ding non-pri­or­ity spend­ing.

ONGC pro­duces 24 mil­lion tons of crude oil an­nu­ally which is sold at an in­ter­na­tional par­ity price. It loses Rs 900 crore in rev­enue on ev­ery $1 per bar­rel drop in oil price.

The com­pany had planned a cap­i­tal ex­pen­di­ture of Rs 36,249 crore in the cur­rent fis­cal and an­other Rs 34,000-35,000 crore in the next. ONGC’S gross billing for crude oil it pro­duced in the first half of the cur­rent fis­cal was $57.33 per bar­rel as com­pared to $105.75 for the first half of last fis­cal. The net re­al­i­sa­tion af­ter sub­sidy pay­out was $53.72 per bar­rel.

In the third quar­ter, its gross billing was about $43 per bar­rel. Sources said ONGC is hop­ing to get ex­empted from pay­ing sub­sidy on LPG and kerosene af­ter the oil price drop.

Up­stream firms like ONGC sell crude oil to re­fin­ers at a dis­count so as to al­low them to sell cook­ing fuel at govern­ment con­trolled rates. ONGC is also hop­ing that the Rs 4,500 per ton cess on do­mes­ti­cally pro­duced crude oil is made ad val­orem to help cut the statu­tory outgo by $6 per bar­rel to $8-9.

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