‘No communication from govt on windfall tax’; wants aggressive exploration and production
Geetanjali Minhas | May 30, 2022 | Mumbai
India’s state-run ONGC (Oil and Natural Gas Corporation) has said that it plans to increase production by 20% by 2025. The behemoth aims to spend Rs 30,000 crore on capital expenditure in 2022-23 of which a third will be on exploration activities.
By 2040, ONGC expects domestic production of 70 MT and international production of 40 MT.
Speaking at a press meet here Monday, ONGC chairman and managing director Alka Mittal said that the firm is spending Rs 30,000-32,000 crore annually to maintain output from ageing fields and find new reserves.
“Without this spending, the output will fall and India's 85 percent import reliance will increase. ONGC will spend Rs 31,000 crore over the next 3 years just on exploration. It is implementing 6 projects at a cost of Rs 5,740 crore.”
ONGC has reported a record net profit of Rs 40,306 crore on a revenue of Rs 1,10,345 crore in the 2021-22 fiscal. It has reported a gross revenue of Rs 34,497 crore in Q4FY’22 up by 63%; Rs 1,10,345 crore in FY’22, up by 62%.
Its net profit of Rs 8,860 crore in Q4 FY’22 increased by 32%; Rs. 40,306 crore in FY’22, up by 258%.Total dividend for FY’22 is Rs 10.50 per share (210%) considering an interim dividend of Rs. 7.25 per share (145%) and final dividend of Rs 3.25 per share(65%). It made four discoveries monetized six monetized in FY’22.
Mittal also said that it is unlikely that the government would impose a new tax on windfall gains made by the company as crude oil prices soared considering the government’s push on increasing production to reduce dependence on energy imports.
On if the government could consider a windfall tax on the state owned and private oil and gas producers to offset increase in public expenditure, the ONGC chief said, “There is no communication as such, no development in that regard. The government has been conveying to us in so many words that now is the time when we should go aggressive on our expenses when it comes to either exploration or production. I don't think they would be talking about anything like this (windfall tax), I am fairly confident of that.”
On May 26, the UK had announced a 25% windfall tax on profits of oil and gas companies with crude surging over 50% in 2022 at that time. This led to speculations in India that a similar step could be taken by the government for additional revenue mobilization measures to offset loss as a result of recent excise duty cuts, higher fertilizer subsidies etc.
The government reduced excise duty on petrol and diesel to ease inflationary pressure which cost Rs 1 lakh crore. The conjecture on windfall tax is to cover this deficit.
On every rupee that ONGC earns, 65-66 paise is given to the government as taxes and remaining is ploughed back into exploration of more oil and gas.
The absence of investment in exploration due to low oil prices in the past few years is one of the biggest reasons for global oil and gas production lagging behind the global demand.
ONGC officials said that despite low oil prices, the firm did not cut exploration and production spending to discover new finds for production to offset natural decline that has set in old and mature fields.
Speaking on capital expenditure investments, Mittal said ONGC has been consistent on capex investments and though the company has an advantage of lower service cost in the last 2-3 years, even earlier the scenario remained the same as on today. “ONGC has a good number of projects in hands at present and many are coming up.”
Pankaj Kumar, Director (offshore) said on the West Coast of offshore, apart from redevelopment of matured fields, ONGC has many greenfield projects. Another flagship project is under development in the East Coast.
On renewables, Mittal said ONGC has signed an MoU with NTPC as well as Norway’s Equinor for exploration and increasing renewables capacity in a strategic manner. “We are targeting a capacity of 1GW by 2025. Our work in the areas of gas is focused on having more green energy and 50% of energy basket coming from there.”
For gas outlook in short term she said, prices are likely to get revised in October. For oil, the scenario is uncertain. In long term it would remain somewhere between Rs 100- Rs 90. In immediate term it could between Rs 100-Rs 120.Officials at ONGC said in the long term the oil price could stabilize to $80-100 per barrel. Gas too will remain high in short term and stabilize in long term.
On the Russia situation and sanctions ONGC said none of the cargoes are held in the prevailing situations. As regards dividends, ONGC does not see any issues in revesting back dividends in Russian business or repatriating to another geography. “We have no directives from the government to increase upstream investment in Russia. We do not plan to pull out of Sakhlin I investments.”
On setting up a wholly owned subsidiary for gas business, ONGC said the process is on and contours are being finalised. The company will be floated within the next few months, primarily for crude natural gas and green hydrogen. Other than that, ONGC has the LNG portfolio, and would be sourcing its own natural gas.
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