Goldman Sachs' controversial note on corporate governance in Oil and Natural Gas Corp that evoked a strong reaction from the company, is not the first instance of the US investment bank having a run-in with the state-owned firm.

In 2005, the then Petroleum Minister Mani Shankar Aiyar had accused Goldman of "lack of propriety and transparency" in presiding over an auction of a Kazakhstan oil firm.

Aiyar had alleged that ONGC [Get Quote] and its billionaire partner Lakshmi N Mittal's $3.98 billion bid was the highest when the bids for PetroKazakhstan closed on (Friday) August 19, 2005. But Goldman allowed China National Petroleum Corp (CNPC) to revise its bid to $4.18 billion in the following days and sale was announced before office hours on (Monday) August 22.

Unlike the Chinese, Goldman did not allow ONGC-Mittal to revise its bid for Kazakhstan's third largest oil producer, he had alleged then.

On Thursday, Goldman had stated that the government, as promoter of ONGC, had taken $20 billion in cash from the company over last six years without consulting minority shareholders.

ONGC Chairman R S Sharma took strong objection to the terminology used by Goldman for the discounts it gave on crude oil sold to state-run refiners so that they could sell fuel at subsidised rates. The company is even considering legal action.

Sharma denied compromising on corporate governance. "We give corporate governance utmost importance. At no point ONGC has compromised on corporate governance issues."

He said the decision to give out subsidy on fuel is taken after deliberation at board and Government was justified in asking for such discounts as unlike global peers, ONGC does not have a production sharing regime with the government on oil and gas it produces from fields given to it on nomination basis.

Under production sharing regime, companies share a fixed percentage of oil and gas they produce with the government, who is the owner of the mineral resource.

ONGC stocks plunged two per cent on Goldman comments on its corporate governance.

"Since 2003-04, the promoter (government, which owns a 74 per cent stake) has taken away cash from the company on a quarterly basis for subsidising loss-making state-owned downstream companies. So far, ONGC's promoters have taken cash of almost $20 billion from the company without consulting the minority shareholders," Goldman had said.

"Despite repeated objections raised by investors and more recently by independent directors on ONGC's board, there has not been headway on this issue," Goldman said. "The market appears to have got used to this practice by ONGC promoters, while similar issues in privately run companies would likely cause serious concern."

Sharma said the Goldman report was malicious and aimed at hurting ONGC's image.

Goldman had reiterated its 'sell' rating on the stock and retained the price target at Rs 574 a share.

It said ONGC today was 'effectively in a no-man's land.' "If one takes a view that oil prices will go down, one should avoid ONGC and if the view is that oil prices will go up there are better oil players in India and the region. If one does not wish to take an oil price view, then ONGC has enough core issues to keep it unattractive," it added.

ONGC has hardly any near-term catalysts to get us excited about the stock. ONGC's discoveries in KG Basin are unlikely to start production before FY-13.

While management had been talking about ONGC Videsh as the growth driver for the group, Goldman said the company has missed good acquisition opportunities in the past to regional peers when oil prices were moving up.

"The one big ticket acquisition that OVL has made (Imperial Energy bid in August 2008) came at the peak of the oil cycle and we view it as having been expensive," it said.

It noted a marked preference of OVL to buy producing assets over exploration assets, which leaves limited possibility of value-addition for minority shareholders. In E&P, companies create value by exploration and discovery rather than by developing known/existing reserves, which are typically priced in to a large extent in such deals.