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Rising under-recoveries: ONGC eyes decrease subject service charges to chop prices

In FY19, ONGC paid Rs 10,042 crore on service contracts of rigs, vessels and helicopters.

Grappling with under-recoveries stemming from low crude costs, ONGC is eyeing potential alternatives to scale back future operational bills by hiring exploration service contractors at decrease charges. The firm, sources stated, has not but introduced any tender for such providers, however is protecting an in depth monitor on the motion of oil costs and ready for the opportune second.

Before the pandemic, lease charges of rigs and different oil subject providers had rebounded after repeatedly falling since FY16, as international oil service corporations depleted their capability for additional margin cuts. In 2017, charges for deep-water rigs had been 65% beneath 2014 ranges. As famous lately by Care Ratings, ONGC had employed offshore rigs at round $30,000-$35,000 in FY16  when a pointy downward development in crude oil was witnessed  which had been 65%-70% decrease than a 12 months in the past.

However, consultants identified that decrease exploration and manufacturing actions within the Gulf may result in international service contractors bid at decrease charges if present market circumstances prevail within the close to future.

In FY19, ONGC paid Rs 10,042 crore on service contracts of rigs, vessels and helicopters, 11.5% decrease in contrast with FY18. The scope of price saving on this entrance will apply totally on its offshore wells, which produce ONGC’s 70% oil output. For its onshore wells, the price of such subject providers are already very low.

If ONGC’s manufacturing progress stays flat at 24 million tonne (MT), it’s more likely to face under-recoveries of $1.Eight billion in FY21, supplied the Indian basket of crude averages at $25/barrel within the 12 months. The firm’s per-barrel manufacturing price is within the vary of $35-$40. Even going through under-recoveries, it’s troublesome for ONGC to scale back manufacturing as a lot of the firm’s current fields are ageing, and capping these wells now would make reviving manufacturing an onerous job.

The firm, which produces about 65% of home crude oil, can also be going through under-recoveries from its gasoline enterprise, after the federal government lately slashed the value of home gasoline by 26% to $2.39 per million British thermal items (mmBtu), whereas the agency’s output price is round $3.8-$6.6/mmBtu.

The firm had stated on March 17 that “at this critical juncture”, the time is “right for certain policy measures which are understood to be at different levels of consideration in the government to move further”. ONGC is about to “adopt a balanced approach towards capital spending,” and has been finishing up “detailed review of activities to look for opportunities to optimise operating costs to preserve liquidity”.

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