The Telegraph
Wednesday , March 5 , 2014
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ONGC pins hopes on gas price hike

Sarraf: Counting gains

New Delhi, March 4: Oil and Natural Gas Corporation Ltd (ONGC) today said it would gain an additional Rs 16,000 crore in revenues from an expected hike in gas prices to around $8 per million British thermal unit (mBtu) from April.

However, the state-run explorer said the revised rates might not be enough to make all its discoveries viable.

“Every dollar increase in the gas price results in Rs 4,000 crore additional revenues on an annual basis. On a $4 increase, the additional revenue will be Rs 16,000 crore and the rise in net profit will be Rs 9,600 crore,” the company’s new chairman and managing director Dinesh K. Sarraf said.

However, most of this additional revenue will go back to the government as higher taxes, royalty and dividend.

“It may appear to be a significant increase but more than one-third of the additional income will go back to the government. Our net retention will be Rs 5,200 crore,” he said.

ONGC is the country’s largest producer of gas. According to the oil ministry, it produces more than 65 per cent of India’s natural gas at 64 million metric standard cubic metres per day (mmscmd). Reliance Industries produces barely 10 per cent of this. Other private players and joint ventures account for the rest.

ONGC director (exploration) N.K. Verma said the new price would make discoveries in KG-DWN-98/2 viable but some fields in the Mahanadi basin block would still remain unviable.

In the Krishna-Godavari basin, off the Andhra coast, the PSU expects the gas to fetch a 15-20 per cent margin after the hike.

Sarraf said the production from the KG-DW9-98/2 block would be 25-30mmscmd from 2017.

The northern part of the Krishna-Godavari (KG) block has reserves of around 2 trillion cubic feet of gas and 117 million tonnes of oil.

On the claims by the Aam Aadmi Party that the cost of gas production is just $1, Sarraf said the production cost was not just the operating cost but also the exploration cost, development expenditure, facility expenses and interest cost.

ONGC’s production cost is about $4 per mBtu and the company “hardly made any profit” at $4.2, he said.