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Oil & Natural Gas Corpn Ltd.

BSE: 500312 Sector: Oil & Gas
NSE: ONGC ISIN Code: INE213A01029
BSE 00:00 | 24 Apr 2020 Oil & Natural Gas Corpn Ltd
NSE 05:30 | 01 Jan 1970 Oil & Natural Gas Corpn Ltd

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OPEN 67.40
VOLUME 2147374
52-Week high 178.95
52-Week low 51.80
P/E 4.18
Mkt Cap.(Rs cr) 85,043
Buy Price 67.20
Buy Qty 100.00
Sell Price 67.60
Sell Qty 8230.00
OPEN 67.40
CLOSE 67.30
VOLUME 2147374
52-Week high 178.95
52-Week low 51.80
P/E 4.18
Mkt Cap.(Rs cr) 85,043
Buy Price 67.20
Buy Qty 100.00
Sell Price 67.60
Sell Qty 8230.00

Oil & Natural Gas Corpn Ltd. (ONGC) - Chairman Speech

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Company chairman speech

Dear Shareholders

The business of oil and gas continues to be challenging complex anduncertain. However ONGC has continued to grow first as a dominant E&P company andnow as a diversified entire value chain. You have been an important partner andstakeholder of this transformative journey. Your faith in us is what propels and sustainsus through the ups and downs and the uncertainties that we face in this constant pursuitof business growth and value-creation while delivering on our role as the country'sforemost energy explorer.

FY'19 was yet again a year of growth for ONGC and its business.Internationally as well it was a period of steady recovery in the oil and gas sector ascrude oil prices stabilised at levels higher than a year ago and E&P sector recordedimpressive numbers.

That being said uncertainty still remains a key feature of theindustry. Crude oil prices swung from a high of USD80 a barrel to around USD50 in a spanof few months as markets reacted to first the impending impact of US sanctions on Iranand then to record US production and a more conservative outlook on global economic growthdue to escalating trade tensions between US and China.

While the need to plan for energy transition in the wake of the globalconsensus and policy actions on the issue of climate change and sustainability does makethe current period within the oil and gas community an exciting one as it opens up newopportunity areas it does bring its own set of challenges with it.

As a Maharatna NOC in the energy sector ONGC's decisions andactions during this period will be of immense consequence to the country's futureenergy landscape and I want to assure you that the Company has chalked out a comprehensiveroadmap for its future growth factoring in its historical competencies as well as emergingavenues that align with its business objective of ensuring country's energy security.On behalf of the Board of Directors and around 31000 dedicated energy soldiers of Oil& Natural Gas Corporation Ltd (ONGC) I now present to you the Company's AnnualReport for the financial year 2018-19.

Performance in our core business of E&P remained impressive duringFY'19. With another year of positive reserve replacement and meaningful discoveriesExploration continues to power the Company's promises of future growth in thedomestic basins. We made a total of 13 discoveries during the year of which 8 were onlandand 5 in offshore areas. More importantly we monetized 5 of those discoveries during theyear itself. Reserve accretion for the year stood at 63.02 MMtoe on 2P basis and a Reservereplacement ratio of 1.41 means that we replenished more than the total quantum ofhydrocarbon produced during the period.

A big positive of our exploratory efforts were the first-timediscoveries in Bengal Basin (Well Asokenagar-1) and Vindhyan Basin (Well Hatta-2). Withthis exploratory success these basins have now been upgraded to Category-II (basins withknown accumulation of hydrocarbons) from Category III (basins with just having hydrocarbonshows). Production of standalone oil and gas edged up marginally relative to FY'18– we produced 45.86 MMtoe in FY'19 against 45.79 MMtoe in the preceding fiscal.The higher output was driven by pickup in gas output which grew 5.4% year-on-year on theback of additional supplies from Daman in Western offshore S1-Vashistha in deepwaterEastern offshore and Tripura onland. It represents the fourth yearsin succession that gasoutput has increased and production outlook remains positive for the next few years withsignificant contribution coming from East-Coast Deepwater development project KG-DWN-98/2coupled withupswingin output from Daman in Western Offshore. In view of the critical roleof energy especially Oil and Gas in the country's economic growth and developmentagenda the Company is actively implementing redevelopment and Enhanced Oil Recoveryschemes.

Overall our cumulative domestic hydrocarbon volumes (inclusive of ourshare in JV-operated properties) stood at 50.04 MMtoe. Production of Value Added Productsincreased for the fifth consecutive year VAP output FY'19 stood at 3.64 MMT versus3.39 MMT in FY'18 i.e. a growth of 7% over previous year.

Management will remain focussed on the E&P business even as itdiversifies value-chain. 10 E&P projects worth र 112585 Million werecompleted during the year. As many as 25 projects with an estimated outlay of aroundर 830000 Million are currently under execution of which 15 would directlycontribute to hydrocarbon production. Envisaged cumulative oil and gas gains from theseprojects through their lifecycle stand at over 180 MMtoe.

Beyond greenfield projects there is significant room for maximizingproduction fromour mature fields as well Globally as per Wood Mackenzie report almost20% of new production will come from incremental projects between 2017 and 2025. WithinONGC we expect as much as 190 MMT of incremental oil from the 29 IOR/EOR projects thatare currently underway. DuringFY'19 more than one-third of our standalone crudeproduction came via these projects.

There is significant EOR technologies in the mature fields. ONGC hasbeen a pioneer in implementation of EOR technologies in India both in Onshore and Offshorefields. Presently EOR projects contributes 9% of total onshore production. ONGC has givenrenewed thrust on Enhanced Oil Recovery (EOR) schemes after recently announced policyframework by the Government of India for incentivising production through improvedrecovery schemes in domestic fields. Some of the EOR schemes which are at various stagesof implementation are Thermal EOR Heavy Oil belt of Mehasana viz In-situ combustion in itsbusiness the Balol Santhal Company remains steadfast and Cyclic Steam Stimulationin Lanwa; Chemical EOR-Polymer Flooding in North Kadi Sanand Bechraji and AlkaliSurfactant Polymer in Viraj Jhalora Kalol Sobhasan Lakwa-Lakhmani (Assam); Gas basedEOR - Immiscible Gas Injection in Borholla (Assam)

Miscible Gas injection in Gandhar (Gujarat) Miscible CO2 injection(CCUS) in Gandhar (Gujarat) Gas Assisted Gravity Drainage (GAGD) in Kasomarigaon (Assam)besides Low Salinity Water Flooding at Mumbai High.

FY'19 marked another year of strong performance for our Drillingoperations. ONGC drilled a record a number of wells – 516 the highest ever in thelast 28 years. This comprised of 105 exploratory wells and 411 development wells.

Oil and gas is a capital-intensive enterprise and your Company'scapital commitments over the years is testament to this. Capex for FY'19 stood atर 294498 Million while budgeted capex for the ongoing fiscal i.e. FY'20isर 329208 Million. Cumulative core capex exclusive of any non-core expenditure onaccount of mergers/acquisitions etc. of the past 5 years stood at र 1495106Million.

Evidently even through the downturn when service sectorcostsdeflated ONGCdid not implement any cuts in its budget. While the focus on‘doing more with less' has gained substantial support in the E&P communityin the aftermath of the recent oil price crisis it is also true at least in the case ofour country producing every additional barrel of oil has also become more difficultcomplex and costly. This is why managing costs will be vital to securing profitability inthe business especially now when we are moving to more logistically difficult andoperationally complex terrains such as deep and Ultra-deepwater HP-HT etc.

In terms of financial performance your Company recorded a GrossRevenue of र 1096546 Million in FY'19 compared to र 850041 Million inFY'18. Net profit touched a record high at र 267158 Million (an increase of34% as compared to FY'18 which was at र 199453 Million). The Company realizedUSD 68.19/bbl for crude sold in the domestic market in FY'19 as compared to USD55.19/bbl in FY'18. Dividend to shareholders for FY'19 remained healthy with atotal payout of र 88062 Million which again was the highest ever with impressivepayout ratio (including Dividend distribution tax) of 39.7%. Dividend per share wasर 7.00 as against र 6.60 in FY'18. Even as your Company expands anddiversifies in its commitment to equitable value-creation for all its stakeholders and ahealthy and consistent dividend payment track record is part of this business philosophy.

Your Company's wholly-owned subsidiary mandated with internationaloperations ONGC Videsh Limited has achieved a stellar landmark by achieving itshigher-ever production of 14.833 MMToe for the year. This constitutes 23% of ONGC groupproduction for the year indicating the significance that the Group ascribes to itsoverseas operations. ONGC Videsh's 2P reserves stand at 675.72 MMtoe at the end ofthe year constituting 36% of ONGC group reserves. These two significant metrics establishthat ONGC Videsh continues to be the second-largest E&P company of India second onlyto its Parent. Consolidated revenue from operations and PAT for ONGC Videsh duringFY'19 stood at र 146320 Million and र 16823 Million as against � Million and र 9815 Million in FY'18 respectively.

It also gives me great pleasure in informing you that production fromGreater Pioneer Operating Company (GPOC) South Sudan project of ONGC Videsh has resumedduring the year after prolonged shutdown since December 2013 and presently the block isflowing oil at ~38000 bopd. ONGC Videsh also achieved its second consecutive exploratorydrilling success in Block CPO-5 Colombia. This follows the first success in the sameblock CPO-5 where commercial oil of 40 API was discovered in 2017. With above two wellscurrent production from CPO-5 is ~8000 bopd. Continuing its thrust towards ensuring equityoil the first equity oil crude produced from Lower Zakum Concession ADNOC Offshore UAEarrived at New Mangalore port on 08th June 2018. This equity crude of ONGCVidesh was refined MRPL (a group company).

True to our vision of becoming an integrated energy major of globalreckoning your Company has over the years built up a sizeable presence in thedownstream arena as well. The process of integration which was initiated with theacquisition of MRPL way back in 2003 has gained further steam with the acquisition ofHPCL the country's third largest retailer in FY'18. While E&P businessremains the predominant cash-generator for the group our downstream businesses lend thedesirable balance to our energy portfolio and acts as a necessary hedge during periods ofmarket volatility.

FY'19 was a strong year for our downstream refining andpetrochemical units. Physical and financial performance of HPCL during the year has beenvery impressive. Its refineries at Mumbai and Vizag have maximized crude processing andachieved the highest ever combined refining throughput of 18.44 MMT with capacityutilization of 117% compared to throughput of 18.28 MMT achieved during FY'18. Italso achieved the highest ever market sales of 38.7 MMT. HPCL also expanded its retailnetwork by commissioning 478 new outlets expanding its retail reach to a total of 15440as on March'19. Gross Sales during the financial year has increased to � Million as against र 2432267 Million during the previous financial year.Net profit for the year stood at र 60287 Million against र 63571 Million inFY'18. Further FY'19 also marked the company's foray into the gasdistribution business as it received PNGRB authorization for CGD network in 20geographical areas in 9 states.

MRPL registered highest ever throughput at 16.43 MMT in FY'19. Atर 723151 Million the company also recorded a 14.6% growth in its turnover whileposting a net profit of र 3320 Million. During the year MRPL also achieved thehighest ever poly-propylene production of 388 TMT and LPG production of 970 TMT. A newretail outlet was also commissioned during the year bringing the total number of operatedoutlets for the refiner to 7.

In the Petrochemical segment both ONGC Petro additions Ltd (OPaL) andONGC Mangalore Petrochemicals Limited (OMPL) registered operational successes and improvedcargo of ONGC Videsh of Das Blend financial performance. During FY'19 OPaL has runat an average plant capacity of 70%; it is expected to reach 100% operating capacity inthe current financial year. OPaL at has sold more than 1 MMT of polymers and has grossedर 97854 Million as revenues. OMPL operated at close to 100% capacity in FY'19.It also achieved a 12.5% increase in its throughput and 18.2% exports growth. Totalrevenue in FY'19 stood at र 83624 Million. It also recorded itsfirst-everprofits with PAT ofर 229 Million.

ONGC Tripura Power Company (OTPC) our Power JV in the country'sNorth-eastern state of Tripura has been one of the most cost effective & efficientpower producer in India having reliable fuel supply arrangements. During FY 2018-19 OTPCcatered to about 29% of the total electricity requirement of the North Eastern region.With 5 years of consistent operations OTPC has positioned itself well and gainedreputation of a credible power generator in the Region. As per the report published byCentral Electricity

Authority (CEA) OTPC has emerged as the largest central sector gasbased power plant in the country in terms of generation during FY 18-19. It achieved itshighest ever turnover of र 14558 Million and net profit of र 2139 Million.The largest Indian Clean development Mechanism (CDM) project OTPC is also the onlydividend paying standalone gas based Power Generation Company in India.

The global energy universe is changing – in fact change has been aconstant theme in our business be it through new technologies or new markets or new oiland gas frontiers. But the transformation of the current period has been brought on by aconvergence of multiple factors key among them being a near-universal acknowledgment ofthe need for a cleaner energy increasing instability of traditional energy marketssovereign policy support for renewables and most importantly a growing tribe of andelectrification ‘conscious' energy consumers. More and more as we move forwardwe will talk and act more as an ‘energy' company and not merely as oil and gasexplorer and producer. It is through these lens that ONGC views the landscape of tomorrowand defines its role and responsibilities. The ONGC Board recently approved the businessroadmap for the Company and its other group entities – "ONGC Energy Strategy2040". It envisions ONGC as "A diversified energy company with strongcontribution from non E&P businesses; 3x revenues and ~5-6x marketcapitalization".

It aims to transform ONGC into a future-ready energy entity one thatpositions itself well to respond to the challenges and opportunities of thetomorrow's energy scene. Of course Technology Digitalization of operationsMeaningful partnerships and Organizational restructuring will play critical roles in thesuccessful implementation of the plan. Beyond business our CSR initiatives have alsohelped the organization in making a positive impact in people's lives. At the sametime it also sensitizes us to our role as an important stakeholder of the society andenvironment. In FY'19 your Company spent र 6146 Million for its various CSRprograms with target areas spanning from Healthcare Poverty Environment WomenEmpowerment and Heritage preservation.

Your Company has also taken a lead role in implementing theGovernment's Startup India program within oil and gas. Having launched the � Million dedicated Startup corpus the Company in response to Hon'ble PM'scall for a solar revolution launched a nationwide Solar Chulha Challenge invitingEntrepreneurs/ Scientists/ Researchers to participate in the indigenous development effortof Solar Chulha suitable for cooking Indian food. Concepts of 3 teams (IIT-BombayNIT-Kurukhsetra and BMS College of Engg. Bangalore) were selected and awarded prizes byHon'ble Minister of Petroleum and Natural Gas. ONGC took up the task of pilot projectimplementation. A total of 86 Solar PV cooking stoves were installed at two villages (74at Bacha covering the entire village and 12 at Jamthi) in Betul District of MadhyaPradesh. With further reduction in cost of battery and PV module it is believed that itcan become one of the preferred cooking solution. An additional benefit of this solutioncan be to use the stored electrical energy to power home lighting systems and otherappliances.

Your Company is committed to conduct the business in a legal ethicaland transparent manner and observes highest standards of corporate governance.Accordingly your Company has been continuously rated "Excellent" grade for itscompliances with the DPE Guidelines on corporate governance.

Here I would like to thank the Government of India especially ouradministrative Ministry of Petroleum and Natural Gas for its positive approach topolicymaking and the constant endeavours to improve attractiveness of the industry. As aNational Energy Company with a mandate that goes beyond business we are grateful forGovernment's guiding hand and timely counsel on key issues. Before I conclude Iwould like to make special mention of the dedication and commitment of all the employeesof ONGC for contributing wholeheartedly to the success and growth of the Company.

Finally while our operating environment may undergo changes we arequietly reassured by your continued confidence in ONGC. We deeply value this relationshipit is a source of strength and stability to us one that allows us to dream big whileholding us accountable and responsible for all our plans and pursuits. I thank you forhaving chosen us and remaining invested through all these years. I firmly believe that thefuture energy landscape holds great promises and we can together add another meaningfulchapter to ONGC's rich history.


Shashi Shanker

Chairman and Managing Director

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