R. S. Sharma, CMD, ONGC, in an exclusive with B&E counts the challenges and the strategies to tackle them.
B&E: ONGC profits fell by 3% in the last fiscal, how much of it would be attributed to the economic slowdown and volatility of oil prices and how are you tackling the same?
RS: Actually, we have a lot of upsides and these come into play when you are under pressure, especially when the crude price came down from $147 per barrel to $34 per barrel; we were in a much better position to withstand that onslaught because of the same strong fundamentals. When oil price peaked we never got this upside because of the subsidy sharing mechanism. Thus we were naturally hedged in the business. So during those times we got maximum $69 per barrel against $147 and the remaining $70 was shared as subsidy discount. And we gave a huge discount of almost 50% .But the same phenomenon played in our favour when the prices crashed. For us the prices did not crash from $147 to $34, they came down from $69 to $34. And of course our last fiscal’s performance has not been able to match up to our growth trend over the past few years. Well the prices are again on a rise but the government cannot do away with the subsidy mechanism yet we are more comfortably placed in comparison to others.
B&E: KG basin has been in the news for long. What are your plans for the KG basin production? What is your take on the coordination and competition with private players like RIL?
RS: ONGC is working on developing East Coast discoveries in an integrated manner in three phases starting from this year itself. Twelve wells have been planned to be drilled in the first phase and more than 35 wells in the subsequent phases. Reserves are estimated to be quite substantial.
Production is expected to commence from 2011. It is a global practice that in the oil and gas business the sharing of infrastructure and resources is very common among the operators. To derive the benefit of economies of scale, to synergise and reduce the cost, sharing of rigs and resources is a common practice. We are happy that we have good synergy with Reliance. They are our equity partner for Panna Mukta field and we are also in talks with them for the sharing of infrastructure, some of the board facilities, online processing facilities, pipeline structure, et al. So I am sure that in times to come instead of duplicating all these investments it will be of national interest if we shared our resources. As for competition, it is very good from the country’s prospective and also if there is no competition one does not get enough motivation to do better. So to stay ahead ONGC is applying the world class technologies and domain experts. As a result we find that our own efficiency has improved. Our exploration success has improved in the last 4-5 years as we have been sourcing and deploying best of these technologies in our activities. And I would say that competition is not a cause of concern as in this business India is so much dependant on imports that I don’t see a situation in the coming future where this competition would be detrimental to the interest of the business.
B&E: ONGC profits fell by 3% in the last fiscal, how much of it would be attributed to the economic slowdown and volatility of oil prices and how are you tackling the same?
RS: Actually, we have a lot of upsides and these come into play when you are under pressure, especially when the crude price came down from $147 per barrel to $34 per barrel; we were in a much better position to withstand that onslaught because of the same strong fundamentals. When oil price peaked we never got this upside because of the subsidy sharing mechanism. Thus we were naturally hedged in the business. So during those times we got maximum $69 per barrel against $147 and the remaining $70 was shared as subsidy discount. And we gave a huge discount of almost 50% .But the same phenomenon played in our favour when the prices crashed. For us the prices did not crash from $147 to $34, they came down from $69 to $34. And of course our last fiscal’s performance has not been able to match up to our growth trend over the past few years. Well the prices are again on a rise but the government cannot do away with the subsidy mechanism yet we are more comfortably placed in comparison to others.
B&E: KG basin has been in the news for long. What are your plans for the KG basin production? What is your take on the coordination and competition with private players like RIL?
RS: ONGC is working on developing East Coast discoveries in an integrated manner in three phases starting from this year itself. Twelve wells have been planned to be drilled in the first phase and more than 35 wells in the subsequent phases. Reserves are estimated to be quite substantial.
Production is expected to commence from 2011. It is a global practice that in the oil and gas business the sharing of infrastructure and resources is very common among the operators. To derive the benefit of economies of scale, to synergise and reduce the cost, sharing of rigs and resources is a common practice. We are happy that we have good synergy with Reliance. They are our equity partner for Panna Mukta field and we are also in talks with them for the sharing of infrastructure, some of the board facilities, online processing facilities, pipeline structure, et al. So I am sure that in times to come instead of duplicating all these investments it will be of national interest if we shared our resources. As for competition, it is very good from the country’s prospective and also if there is no competition one does not get enough motivation to do better. So to stay ahead ONGC is applying the world class technologies and domain experts. As a result we find that our own efficiency has improved. Our exploration success has improved in the last 4-5 years as we have been sourcing and deploying best of these technologies in our activities. And I would say that competition is not a cause of concern as in this business India is so much dependant on imports that I don’t see a situation in the coming future where this competition would be detrimental to the interest of the business.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
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IIPM Links
IIPM : The B-School with a Human Face
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