The government plans to rely on buyback offers by cash-rich public sector companies to meet disinvestment target, which looks tough to achieve. ONGC, the state-owned oil explorer, does not have enough cash to make such an offer. Last week, Coal India said no to the buyback offer.
“We don’t really have a very large pile of money, which is lying idle,” Sudhir Vasudeva, Chairman and Managing Director of ONGC told NDTV Profit. He said that the money would hardly suffice for next two years expansion plans. He said that if the company kept on paying for the subsidy and is not remunerated, then ONGC may need this money for funding internal outlays.
He also spoke at length about new discoveries made by the company and challenges in Syrian operations.
Below is the complete interview. Don't miss the accompanying video.
- Talk about these 2 discoveries you've made. At this stage, it might be difficult to put a number to resource potential, but can you give us an indication of the same?
- We have made two discoveries, one in the Western offshore and the other in the Western onshore. Our discovery in the Western offshore of Mumbai high is called B 127 East. This well has produced around 1076 barrels during testing and about 188 cubic meter of gas.
The board has also approved the development of b27 b157 and b59 cluster along with b55 with a cost of around Rs 2060 crore. This b127 well will add upside in that project but it is not possible to give you a reserves figure by only one discovery. It will take time to appraise that area.
The second discovery which we have notified is Western onshore, which is in the Mehsana district's North side. It has produced about 175 barrels, which translates into 25 tonne per day. It is a well with a good potential.
- The company has been making many discoveries, but not translating into production?
- There is always a gestation period between discoveries and the next step is appraisal. After that there is a field development plan, and then it is put on production. In case of onshore, however, if a discovery well has produced and if there is an installation nearby, then we try and put it on production immediately without waiting for appraisal to be done. So, we try and take production from the discovery well itself and then we keep on appraising the area, keep on drilling the well as we have more and more information.
However, in the case of offshore, it takes time because we have to create infrastructure. We have to appraise the asset, evaluate it and if it is commercially viable, then we have to make a plan and create infrastructure, which takes at least two years. So, there is time lag between discovery and its fruition.
- What is the production status from the large fields and cluster/marginal fields? You have reported on two cluster fields and reports suggest that you'll be spending about Rs 25000 crore in marginal fields this year…
- We have ten projects in the Western offshore, which are going on for development of 34 small fields. These are called industrial developments at the cost of about Rs 26,000 crore and the total production from this development project is 110 million tonne of oil and oil equivalent.
Moreover, they will be adding nearly 4 million tonne of production in our net production in 2013-14. Today, our production is about 24.5 million tonne excluding our contribution from the joint venture that will touch about 28 million tonne in 2013-14 after implementation of this marginal field.
- What’s the update on OVL? There is news on Syria shutdown.
- It is true that the European Union has put sanction on this companies, which are producing oil and OVL also happens to be one of the partners in the alpha rats fields along with Gulf Petroleum Corporation (GPC) and others. But we are examining the legal options on that. It is not that we have stopped production.
The total production was about 80,000 barrels, which has now come down to about 70,000 barrels because we were not getting enough tankers to carry as we are not covered under the EU sanctions. So we were trying to make all efforts.
- What about production from OVL, it is not going as per expected earlier? Also what are the overseas plans?
- We produced 4.5 million tonne last year. Our target for this year is also same because we are not adding any new production. Production from some of the fields is declining, but we have tied up a project in Venezuela, which will start production from 2013 onwards.
We are still pursuing more and more opportunities and we have a production target of 20 million tonne of oil and oil equivalent from our regions abroad by 2020.
- FPO is not happening this year, are any talks on for a buy back? A circular has been sent out seeking opinion on buyback, have you received anything like that? What’s your view on it?
- We have not received any formal communication on this.
- Do you think that buyback is the optimal use of your cash or you can use it in a better way by investing in the business-expansion purposes or acquisitions?
- There are many ways in which the equities can be raised, one is FPO, then cross holding or buy back. The FPO, which was coming, was for disinvestment of the government’s equity, which is about 5 per cent. Now the government has to make a call which way they want to do it.
- What do you think about the buyback?
- We don’t really have a very large pile of money, which is lying idle. Whatever is there will hardly suffice for next two years in case we have our expansion plans. If we have to keep on paying this subsidy burden and if we don’t get good remunerative prices, then we might need this money for funding our own internal outlays.
- So if you don’t have enough cash, then that’s actually contrary to the government’s view that PSUs are cash rich and hence, that cash can be used for a buyback?
- I’m trying to dispel that oppression; whatever is reported, a part of that is kept for dividend payment. If you see our trend, we have to keep a sizeable amount for that plus about Rs 8000 crore; it has to be kept in a fund, which is only for abandonment and restoration of the fields. We have to restore the fields back to their original conditions, so that amount is not really liquid and the balance that is left is not really very sizeable.
- So are you considering to raise money if you have just enough cash right now?
- Whatever is required at an appropriate time, would be considered. I would not give any opinion at this juncture.