ONGC spend mostly on exploration

Oil and Natural Gas Corp is spending 93 per cent of its total capital expenditure of Rs 10,850 crore (Rs 108.50 billion) in the current fiscal on its core activities of oil and gas exploration and production, according to its chairman and managing director Subir Raha.

In a presentation to Petroleum Minister Mani Shankar Aiyar last week, Raha sought to dispel the notion that ONGC was "diverting money from E&P to other businesses" like fuel retailing, LNG, petrochemicals and power generation.

Raha stated that of the Rs 12,915 crore (Rs 129.15 billion) capex in 2002-04, non-E&P activities got only Rs 1466 crore (Rs 14.66 billion), mostly for acquisition of MRPL.

In the current 2004-05 fiscal, only Rs 730 crore(Rs 7.3 billion) was being spent on activities to integrate its core E&P business with other segments of the hydrocaron value chain.

Next fiscal, ONGC has planned Rs 10,740 crore (Rs 107.40 billion) of capex, of which only Rs 170 crore (Rs 1.7 billion) would be for integration purpose.

Aiyar and Petroleum Secretary S C Tripathi have time and again criticised ONGC for pushing for downstream business as there was large profit in it, but Raha refuted the allegation saying ONGC has undertaken the world's biggest seismic data acquisition campaign and the biggest deep water exploration campaign globally.

He cited the example of oil majors ExxonMobil, BP, Total, Shell, ChevronTexaco, CNPC, Petronas, Reliance and Sinopec, who had ventured into all activities of the hydrocarbon chain from E&P to refining, retailing and petrochemicals to say "we have no plan to diversify, except perhaps a subsidiary for self-insurance."

"Chasing the molecule is the only way to secure sustained growth. The intent is to squeeze the last cent from the molecule. Going forward, value addition increases, and risk decreases by multiples," Raha said.

Quoting management gurus Prahlad and Hammel, he said "Core competence of McDonalds is not frying hamburgers... core competence of Nike is not making shoes. Core competence of McDonalds is convenience... core competence of Nike is merchandising."

"We submit core competence of ONGC is not exploration and production... core competence of ONGC is knowledge of oil and gas business, better than anyone else in India.

"The core business of ONGC is exploration and production, and will remain so as evidenced by the Corporate Stategic Plan, which targets doubling of reserves to 12 billion tonnes of oil and oil equivalent gas and improving recovery factor from 28 per cent to 40 per cent," he said.

To monetise assets, ONGC was improving production from existing fields, putting new discoveries and idle fields to production and investing in overseas assets.

The company also plans to assetize money by investing in forward integration - shipping, refining, marketing, power, LNG, pipelines and petrochemicals, Raha added.

He complained that while ONGC's requests for joint ventures (particularly in the areas of forward integration) have been blocked, approvals have been accorded to sister PSUs.