Chairman, ONGC Videsh (Chairman & CEO of parent ONGC), ONGC Videsh Limited (OVL)
ONGC's Arun Singh On New Gas Pricing Regime & More | Spotlight On Kirit Parikh Recommendations
'Ceiling on gas prices will not have an impact on the co as new wells will see higher prices and there will be more production of new wells' ONGC's Arun Singh.
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Transcript (25 segments)
I
Interviewer0:00
I've done five that kind of a day so far this Thursday we have the management of ONGC now joining in on the back of the Kirit Parikh committee panel recommendations being accepted. Much of the discussion and focus has been around what this means for city gas companies, but this also has implications for all companies like ONGC, which is by far the largest gas producer in the country. Arun Kumar Singh is Chairman and Chief Executive Officer at ONGC. Mr. Singh, good to have you with us here on the program. Thank you very much for your time. Mr. Singh, what is the impact of these recommendations on the gas business at ONGC for you?
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Arun Singh0:39
Good morning to you and your viewers. In fact, if we see this, you have to see in the context of ONGC. As you would be aware, in the past ONGC was even getting a gas price of 1.79 dollars per mmbtu at least four or five years back. So we have now five price blocks. First, to clarify the point for you, nomination blocks we have from existing wells we have the limit of 4.4 and 6.5 per ceiling, that also goes up after two years after a 25% per year. So that is one part. Second part, if you have read the fine prints of the notification, it says that from new wells and from new well interventions, we will get a price of 20% more than the APM price. APM price at today's formula of 10% approved it is 7.92, so effectively from new wells and the intervention wells, ONGC will get 9.5 plus something between 9.5 to 10, depending on what crude price varies. And this part, new wells, you may be aware that every year 8 to 10% production gets added for new wells because you have to keep investing maybe to remain at same level. You just produce the same quantity of gas because every well on average has a tendency to lose 6 to 8% production every year. So you have to see second price from nomination field. Now we have two prices: one price is ceiling of 6.5 for this year, and second new wells you will get a price of between 9.5 and 10 depending on the crude price. So now this is the two part. Third part that is also very important for ONGC is that HPHT will have a higher price. And third, ONGC has got freedom now to sign long term for any gas which is from new wells and well intervention. Also, you may be aware that some wells we have freedom, some field we have freedom to do marketing. We have both freedom of marketing as well as price. So basically, in a nutshell, if you see, hence from every year on year when you see profitability will be on rise, assuming that crude price will hover around where it is hovering now. So this is nutshell, but when you see, very positive story.
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Interviewer3:25
All right, Mr. Singh, we take note of your point and your inputs as well. You had mentioned that gas from non-nomination blocks will have 20% premium to APM prices. What percentage of your production is from this non-nomination blocks?
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Arun Singh3:39
Name nomination block itself. Just read the order. Yes, this nomination block itself, any new well in the nomination block also will get this higher price.
I
Interviewer3:51
Oh.
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Arun Singh3:52
Okay, so this is the fine print you have to read. So this is going to benefit to a large extent. And therefore, one more point I wanted to tell you and your viewers: ultimately, happening it is 10% of crude price plus 20% you get on account of this new wells. So any new investor is going to get 12% in India of the crude price, which is international average. Today gas price would get calibrated agreements linked to crude with a slope of 12% is considered universal when you link it with crude. Unfortunately, last two years the gas price got completely delinked from crude, otherwise energy equivalency ties it is 12% story.
I
Interviewer4:38
Okay, okay. Can you also help us with some numbers on what the gas and oil production targets would be for ONGC over the next couple of years? Where are we currently and what kind of growth are we looking at in terms of production both for gas and oil?
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Arun Singh4:56
Come again, I didn't get you.
I
Interviewer4:59
I was asking you about the production targets that you have for ONGC over the next couple of years.
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Arun Singh5:07
So when you see, as of now at a group level, it is 20 million ton oil last year, 20 BCM gas which is oil equivalent gas of 20 million ton. We have from our joint ventures around 3 million tons, so around 2 to 3, so that is 42. And 10 million ton we get out of OVL. So ONGC at group level last year was 53.54, and we are hoping that this year, that is 23-24, will be around at group level at 56 or 57 to be precise million tons. So this is the number if you are interested in production numbers.
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Interviewer5:44
Okay, all right, so you're basically looking at growth of around 5 percent.
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Arun Singh5:50
Yeah, yeah, exactly.
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Interviewer5:52
Okay, all right. Before we move on, I wanted to ask you: since you're going to be making good profits in the next few years as you said, things will look up, what do you do with this money? You have been paying out a healthy dividend, so do you stick to that or do you have some capex plan? So give us two part questions: do you intend to continue with this good dividend yield that you have been paying out, and what is your capex plans for the next couple of years?
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Arun Singh6:18
So this question, her board will have to answer because these are the board decisions.
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Interviewer6:23
You can tell us what are your capex plans.
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Arun Singh6:29
30,000 crore rupees per year typically at the group level. So that remains. That 30,000 crore pressure will remain for two or three years because we have some parties for new production, some parties for old production. So capex will remain, in my view, will remain at 25 to 30,000 crore. But yeah.
I
Interviewer6:53
Mr. Singh, my colleague said good profits. Could you tell us what could be the incremental impact on earnings? Just a rough estimate. I mean, you gave us a sense of volumes, but what will these measures do?
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Arun Singh7:10
It depends on what happens to crude. This sizable portion is still linked to oil price, and oil price will depend on what happens in the international market. So it is very difficult to predict what will be the number finally. But in a ballpark number, if you say that, I would say that we should have a healthy profit.
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Interviewer7:32
Although, you know, now this introduces a cap as well, right? At a 10 to 12 percent slope. In the previous regime, APM prices actually would have been much higher. So there is a cap as well, one needs to be mindful of.
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Arun Singh7:49
No, cap is for old wells, correct. And please mark my word, old wells get replaced by new wells. So now in three or four years time, you can see it at par with the international market. Even in gas, oil is already at par with international market. In gas also, with this limit of 6.5 only for the old wells, it is not for new wells.
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Interviewer8:16
Okay, just one clarification: this 5 percent growth that you said in production, it is for oil and for gas combined, right?
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Arun Singh8:24
Entire group level, I told group level, oil plus OEG we call it. Okay.
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Interviewer8:28
And can you give us a quick update on the Mozambique project as well?
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Arun Singh8:31
Now it is something that it is moving, and we hope we are very hopeful that something great will happen this year.
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Interviewer8:39
Okay, all right. We leave it at that. We will come back to you for more on that when things progress. But for now, Mr. Singh, thanks a lot for joining in and speaking to CNBC TV 18. Let's do one thing, let's take a quick break on that note. On the other side, we will be joining in for some technical trades. Do stay tuned in.