In spite of being the largest profitmaking listed company in India and always staying in the top three by market capitalization, ONGC hardly participated in the market’s rally through 2012. When the BSE Sensex gained 26% through the year, ONGC remained flat. Its subsidy sharing woes were no doubt the main reason, but the falling production is another concern for investors.
The monthly production data published by the petroleum ministry shows that ONGC’s oil production has been on a steady decline through the first half of FY13. During the April-November 2012 period, ONGC’s production, at 15 million tones, was 7.3% below its target and 5.9% below its production in the corresponding period in the previous year. Production from the Mumbai High offshore field, which is the biggest contributor to the company’s total production, was 8.8% below target.
The company had acknowledged its production woes in its interaction with the analyst community. “Due to deferment in the commissioning of marginal assets and natural decline, ONGC has reduced its FY13 production guidance to 23.6 million metric tonnes (MMT) from 27.5 MMT and for FY14 to 25.8MMT from 28.2MMT,” mentioned Religare’s report on the company in November 2012.
The company has been blaming less-than-anticipated success on various fronts as the major cause of missing production targets. The petroleum ministry has enumerated a few reasons, including lessthan-anticipated oil production from side track and development wells in the Mumbai High and similar problems in the Vasai East well. Project delays too have contributed to the shortfall.
However, ONGC missing out on its production targets is not a recent phenomenon. The company’s production through the 11th Five Year Plan too was less than expected. According to the 12th plan documents, production target for ONGC was 140 million tonnes during the 11th plan, while actual production stood at 124.3 million tonnes, translating into an 11.2% shortfall.
According to the 12th plan, ONGC’s production is expected to be 25.05 million tonnes in FY13, which will rise to 28.27 million tonnes in FY14 before falling to 25.5 million tonnes in FY17. However, these targets appear difficult to meet under the current circumstances.
To be fair, the Bombay High is an old field and is subject to natural decline in reserves. The company has been battling the decline with an array of special projects designed to extract more oil from the reserves. The planned investment for these projects is . 40,363 crore, out of which it had spent . 28,420 crore till FY12. The company has also been expanding its reserve base with incremental discoveries.
At a time when ONGC is facing a funds crunch for capital expenditure and acquisitions abroad — both necessary to keep its production stable and growing — due to the ever-growing subsidy burden, the decline in domestic production is an additional cause of concern.
The monthly production data published by the petroleum ministry shows that ONGC’s oil production has been on a steady decline through the first half of FY13. During the April-November 2012 period, ONGC’s production, at 15 million tones, was 7.3% below its target and 5.9% below its production in the corresponding period in the previous year. Production from the Mumbai High offshore field, which is the biggest contributor to the company’s total production, was 8.8% below target.
The company had acknowledged its production woes in its interaction with the analyst community. “Due to deferment in the commissioning of marginal assets and natural decline, ONGC has reduced its FY13 production guidance to 23.6 million metric tonnes (MMT) from 27.5 MMT and for FY14 to 25.8MMT from 28.2MMT,” mentioned Religare’s report on the company in November 2012.
The company has been blaming less-than-anticipated success on various fronts as the major cause of missing production targets. The petroleum ministry has enumerated a few reasons, including lessthan-anticipated oil production from side track and development wells in the Mumbai High and similar problems in the Vasai East well. Project delays too have contributed to the shortfall.
However, ONGC missing out on its production targets is not a recent phenomenon. The company’s production through the 11th Five Year Plan too was less than expected. According to the 12th plan documents, production target for ONGC was 140 million tonnes during the 11th plan, while actual production stood at 124.3 million tonnes, translating into an 11.2% shortfall.
According to the 12th plan, ONGC’s production is expected to be 25.05 million tonnes in FY13, which will rise to 28.27 million tonnes in FY14 before falling to 25.5 million tonnes in FY17. However, these targets appear difficult to meet under the current circumstances.
To be fair, the Bombay High is an old field and is subject to natural decline in reserves. The company has been battling the decline with an array of special projects designed to extract more oil from the reserves. The planned investment for these projects is . 40,363 crore, out of which it had spent . 28,420 crore till FY12. The company has also been expanding its reserve base with incremental discoveries.
At a time when ONGC is facing a funds crunch for capital expenditure and acquisitions abroad — both necessary to keep its production stable and growing — due to the ever-growing subsidy burden, the decline in domestic production is an additional cause of concern.
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