ONGC posts first loss on future price impairments
Indian state-controlled upstream firm ONGC has posted its first ever quarterly loss after taking a one-time impairment for "future crude and gas prices", it said without giving details.
ONGC recorded an impairment loss of around 49bn rupees ($650mn) in the January-March quarter of the 2019-20 fiscal year ending 31 March. The impairments led to losses of around Rs31bn in the latest quarter compared with a profit of Rs42.4bn a year earlier. It posted a Rs134.4bn profit for 2019-20, 50pc down on Rs267.6bn a year earlier.
ONGC suffered in April after crude prices fell to $20/bl making it difficult for it to even cover operating costs. The company starts losing money at less than $40/bl because of government taxes, leaving it with little to spend on reviving output from its ageing fields. ONGC's crude realisation was $49/bl in the latest quarter compared with $61/bl a year earlier.
Crude output dropped by 1.4pc in the latest quarter from a year earlier to 469,000 b/d and gas production fell by 8pc to 6bn m³.
ONGC will face further losses on gas production in 2020-21 because of a widening gap between production costs and state-set gas prices. The average cost of production for ONGC for gas, most of which comes from offshore areas, is $3.70/mn Btu, company officials said. But ONGC secured only $3.23/mn Btu in the latest quarter, which was further cut by the government for April-September to $2.39/mn Btu. The company cannot even meet operating costs at such rates, the officials said. New discoveries in deepwater areas off the east coast will cost upwards of $5/mn Btu to extract, they said.
ONGC expects crude to stay in a $45-$55/bl range, with it evaluating projects on a $45-50/bl basis. "If domestic upstream industry should flourish, monetary realisation has to be equivalent to international rates," ONGC said. India has no price controls on crude but applies various taxes and royalties, while domestic gas prices are fixed by Delhi twice a year.
The company has asked the government to reduce the burden of the royalties and taxes. The federal government charges a 20pc tax on what producers realise, a 20pc royalty charged on oil extracted from inland areas by state governments and a federal royalty of as much as 12.5pc on offshore oil production.
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