Talking to Nayantara Rai of ET Now, Shashi Shanker, CMD, ONGC, on the sidelines of of the International Energy Forum 16 (IEF 16), discusses likely timeline of MRPL-HPCL merger, possible acquisitions, plans for setting up a gas trading hub and more.
The market has been expecting a merger of MRPL and HPCL, a share swap of sorts. How important or bigger priority is that for you or could it happen in this financial year?
If you are talking about this financial year, that is a possibility of course. But merger is a relatively complex exercise, unlike your acquisition. So, merger will take place even if not in this financial year. I cannot put a timeline for this.
Your acquisition of HPCL has been criticised by some, because that would have a negative impact on your balance sheet. It could throw it off gear, the debt could go up. Did that happen?
No. If you just look at our balance sheet, today debt-equity ratio is just 0.2:1 and for a E&P company or for that matter an integrated energy company, this is something one should not be much concerned about. Apart from this, we have good liquidity. We have stocks of some other companies like IOC which we could exit at some opportune time.
So, what could be an opportune time because the markets have been very volatile?
Yes. We are just following it up.
If you were to exit these IOC and GAIL stockholdings, etc, what would you use those funds for? Would that be to clean up the balance sheet or for expansion?
Depends on the opportunity. Immediate priority will be to clean up the balance sheet and if we get some other opportunities for growth or acquisition outside, probably we can utilise this one for our growth.
Can we expect more acquisition?
Yes and probably we have got a very good opportunity to interact with many of the oil exporting companies. There are some very good opportunities which exists overseas.
I am talking to you from the venue of the International Energy Forum 16 (IEF 16). It has come to India after a gap of 22 years. One of the key note speakers has been Saudi Arabias energy minister who has said India is going to be a priority destination. They want to sell fuel in every city, in every neighbourhood in India. They are looking at big opportunities for fuel as well as for chemicals and that is what the direction has been given to Aramco and others like SABIC. Is ONGC in talks with Aramco? We have seen the announcement of a refinery.
That is the west coast refinery we are talking about. We are going to set up the 60-million-tonne refinery and HPCL is going to have a good 25% stake in that. They are showing interest in some of our petrochem companies like ONGC Petro Additions Limited (OPAL). We will be at an opportune time to divest some of our stake.
You are the new chairman and in charge of ONGC. Do you want to share with me your vision for ONGC? We keep hearing about KG Basin getting delayed. Production is stagnant in Bombay High.
The KG Basin project is on track. A couple of days back, the honourable minister was there with me and we have located the first development well. The work is in progress and we will produce the first gas from there by end 2019 and oil by 2021.
How will you scale that up?
In terms of volumes, you are talking about the peak production we are going to get. Oil will contribute to 17% of our todays production. For gas, it will be 24%. In absolute numbers, we are going to add four million cubic million tons of oil annual production and gas it will be something around 17 million standard cubic meters of gas. That is quite substantial.
Prime Minister Modi was quite unequivocal today about it and India has to drive the global energy machine. ONGC has to be a part of it.
He had given a very challenging task of 10% import reduction by 2022.
And are you on track?
Yes, it is a multipronged approach. One of the main components is going to be from increase in domestic production. We have the roadmap ready with us. We are working towards that.
What about the first trading hub that Dharmendra Pradhan spoke about in his speech saying by the end of the fourth quarter, we are going to see the first trading gas hub in India?
We are very motivated. Today, the gas prices being decided by a formula as you might be aware and today our realisation is about $3.06 per MMBTU, that is probably not good enough if you compare the price at which we are importing LNG so there has to be some kind of parity. Once this gas trading hub is established the market should be able to decide the correct price for gas and then companies will get better realisation for their produce, especially gas.
There are quite a good number of opportunities which we are not in a position to take investment decision on because the cost or exploitation is more than what is the price we are getting today.
You said the margin is about $3 a unit at the moment. How will this trading hub exactly work?
It is a gas trading hub. The formula is valid only till 2019. We will have gas from different sources. Some part of LNG gas will come into this. There are different sources and the consumers are going to decide the price. So, price will be market driven price. We should be able to have better realisation for our domestic produce as well.
And be a rival of Henry Hub in the United States because that is the vision?
That is the vision, yes.
What about your joint venture with Cairn? That turned out to be a very profitable and a fruitful one. Cairn has been trying to increase its production as well. Can you throw any light on that?
Yes, they have undertaken some enhanced recovery projects in terms of polymer flooding and that has given some very positive results. So, yes, our partnership with Cairn has yielded positive or better results for us as well.
What are your views on the open acreage policy? That could see the likes of Exxon Mobil coming into the market but that has not happened as yet, maybe because the prices have been supressed. Do you think that is set to change?
See, this process has just started. The first round is just underway and the last date for submission of the bids is 2nd of May which was just announced in the morning. So ,let us see.
Are you going to be an aggressive bidder?
Yes, as far we are concerned, yes. We have already carved out good number of acreages which has been put on for bidding so we are very upbeat about it.
We are at the start of the financial year where it seems the government can no longer rely on a low crude price regime. How do you expect this to pan out? What is ONGC pencilling in?
I think and most of the experts have also been saying that crude price is going to be range bound, anything between $55 and $70. It is not going to go way up to $100 a barrel. I think everybody has realised this.
Now you would have another headache, the margins of oil marketing companies. They have not increased prices today, probably in light of the Karnataka elections. That is not healthy fuel politics?
Any way, I need to check with my counterparts.