Oil and Natural Gas Corporation Limited (ONGC) Q3 FY23 Earnings Concall Transcript

Oil and Natural Gas Corporation Limited (NSE:ONGC) Q3 FY23 Earnings Concall dated Feb. 15, 2023.

Corporate Participants:

Pomila Jaspal — Director, Finance.

KC Ramesh — Chief Accounts and Financial Reporting Services

Pawan Agarwal — Chief Corporate Planning and Strategy

Vinod Hallan — Head Financier

Analysts:

Probal Sen — ICICI Securities — Analyst

Varatharajan Sivasankaran — Antique Limited — Analyst

Sabri Hazarika — Emkay Global — Analyst

Kirtan Mehta — BOB Capital Markets — Analyst

Hemang Khanna — Nomura — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Good evening ladies and gentlemen, I am Vidya moderator for the conference call. Welcome to ONGC’s Q3 FY 2023 Earnings Conference Call. We have with us today Ms. Pomila Jaspal, Director Finance and her team who will interact with investors and analysts to discuss ONGC Q3 earnings. [Operator Instructions]

I would now like to hand over the floor to ma’am, Pomila Jaspal. Thank you and over to you.

Pomila Jaspal — Director, Finance.

Thank you. Good afternoon, ladies and gentlemen. Just to introduce myself I am Pomila Jaspal, Director Finance ONGC. I welcome you all in this ONGC earnings call for the quarter and nine-month financial year 2022 -2023, thank you all for joining us on the call, I’m joined here by my colleagues. Mr. K.C. Ramesh, Chief Accounts and Financial Reporting Services; Mr. Pawan Agarwal, Chief Corporate Planning and Strategy; Mr. Sanjay Bharti from Corporate Accounts section; Mr. Vinod Hallan and Mr. Chandra Shekhar from ONGC Videsh Limited and Mr. Prakash Joshi from Investor Relations and Corporate Budget.

As you know, ONGC has compiled its financial results for the quarter and nine-month ended 31, 2022. This have been reviewed by the — financial have already been released on 14 February 2023 through a press note and sent to the stock exchanges. This has also been sent to the analysts who are there on our mailing list. Here is a brief synopsis of the results. The company has earned a net profit, that is profit before-tax of a profit-after-tax of INR11,045 crores during the third quarter of financial year 2023 as against INR8,764 crores during the third quarter of financial year 2022, an increase of INR2,281 crores that is 26%. Profit-after-tax for nine months for financial year 2023 has increased by INR7,631 crores that is 24.3% that is from a profit after of INR31,446 crores. In nine month financial year 2022 INR39,077 crores in nine months financial 2023. The increase in net profit during the current quarter and nine-month period financial year 2023 is on account of higher sales value revenue, mainly due to higher crude oil, natural gas and [Technical Issues]

Similarly, the operating expenditure in nine-month financial year 2023 has also increased by INR1,653 crores, that is 10.8% from INR15,282 crores in nine-month financial year 2022, so INR16,935 crores in nine-month financial year 2023. The increase was mainly on account of increase in consumption of materials by INR334 crores mainly at RJ-ON-90/1 block by INR2021 crores on account of increase in average polymer prices. The increase is mainly on account of increase in consumption of materials that is INR334 crores mainly in RJ-ON-90/1 block by INR221 crores on account of increase in average polymer prices.

Repair and maintenance costs of INR336 crores, transport expenses by INR224 crores, workover operations by INR137 crores, water injection by INR218 crores due to increase in equities is mainly at Western Offshore. The depreciation, depletion and impairment cost for quarter three financial year 2023 and 9 months financial year 2023 stood at INR4,855 crores and INR11,959 crores as against INR4,337 crores in quarter three financial year 2022 and INR12,446 crores during the corresponding quarter, a period of previous year.

This decrease in nine months financial year 2022-2023 is mainly due to the impairment by INR2,129 crores on certain discovered small fields of the company falling under 10 contact areas which were awarded by Jindal to the winning bidders, which is offset by increase in depletion expenditure by rupees INR1,710 crore mainly due to capitalization of development well and facilities at Western and Eastern Offshore.

Well, friends with this, I finish my briefing of the third quarter results for financial year 2022, 2023, we will be very happy to take questions from you. We would request you to restrict your queries on financial results only. And with this thanking you and thank you very much.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Probal Sen from ICICI Securities. Please go-ahead.

Probal Sen — ICICI Securities — Analyst

Thank you for the opportunity. Good afternoon. My first question was with respect to the KG Basin asset. Earlier briefings have indicated that the FPSO, which was a critical piece of equipment was due to be installed anytime in the next few months or was already in-process. So, just wanted to get a sense if that has actually happened. And if so then what are the timelines for production start and when can we expect more updates from this?

Pomila Jaspal — Director, Finance.

Probal, I think the specific question which you are referring to KG basin so let me tell you over here that the FPSO, the floating production storage unit sailed from the singapore yard on 21, November 2022, arrived in Indian waters on 15/12/22 and sailed away from Kakinada Anchorage and arrived at offshore side on 19, December 2022 and hookup of [Indecipherable] was completed on 27, December 2022, our installation of sea-water channel water take rises etc completed on 28 January, and further commissioning work is in-progress.

And with this I think most of the activities for that, they are in line, and we are expecting to produce the gas — the oil to the tune of 38,500 barrels of oil per day and gas by you can say gas to the tune of 11 — sorry, gas with peak oil of 45,000 in 2023, 2024 and likely peak gas of 11.2 million standard cubic meters per day in 2024 2025.

Probal Sen — ICICI Securities — Analyst

That is very helpful. The second question ma’am was about with respect to the results this time around there seems to be an increase quite sharply in both the other operating expenses as well as in raw-material consumed. Any specific reasons for that? If you can give us a sense?

Pomila Jaspal — Director, Finance.

One immediate reply which is coming to my mind is that because our raw-material contains C2, C3 that rich gas, LNG, which we are buying for our C2, C3 plant so that is coming because now with the international volatility in the crude oil prices, the LNG prices have also gone up, so we were buying this through PLL and that has also built-up the increase in the feedstock prices. And with regard to the other, you can say operating expenditures, it is mainly because of, you can say is the — this is mainly because of repair and maintenance of INR60 crores, then transportation expenditure of INR97 crores and mainly this is because up to Mumbai Offshore and because the market because of the increase in prices, the charter hire of the helicopters so that has also become costly.

Now the O&M charges — we are — lot of flying hours they have been increased because of which the transport expenses have increased and the other reasons are, of course, that I have already explained to you; the foreign-exchange loss is also there so that is also adding to the increase in the cost. And our Chief Corporate Accounts is here, Mr Ramesh, if he can add something on this, so that will further explain the detail.

KC Ramesh — Chief Accounts and Financial Reporting Services

Yes, good afternoon. Like madam has already explained the reason for the increase in the opex mainly it is as for the nine months period is concerned, it is as she explained it is in the Western Offshore, where we have increased activity in water injection, workover repair also, we had this cyclone also earlier so we are doing certain repairs over there. So, mainly with this plus the exchange loss of about INR1,066 crores these are the contributing factors for the increase in the opex.

Probal Sen — ICICI Securities — Analyst

Got it, sir. That’s very helpful. If I can ask a small follow-up, in terms of run-rate therefore, on a quarterly basis, should we then assume this as the new normal of around INR5000 crore, INR5500 crores for this other expense going ahead given that our activities in offshore will only continue to accelerate?

KC Ramesh — Chief Accounts and Financial Reporting Services

Year question is with respect to the next financial year are you saying that Q4 year-on year this would be the [Indecipherable] or are you asking for the coming quarter?

Probal Sen — ICICI Securities — Analyst

Yeah, I’m saying that going-forward for the next few quarters sir, is this INR5500 crore plus number?

KC Ramesh — Chief Accounts and Financial Reporting Services

Yes maybe around 5% to 10% plus-minus is normally in quarter four, we have a little more expenditure so it could be in that range yes.

Probal Sen — ICICI Securities — Analyst

Got it, that is very helpful, thank you so much for your time. I’ll come back if I have more questions.

Operator

Thank you sir. The next question comes from Varatharajan Sivasankaran from Antique Limited. Please go-ahead.

Varatharajan Sivasankaran — Antique Limited — Analyst

Thank you. Good afternoon ma’am. Just wanted to check on this number which you gave for KG Basin, if you can proivde a breakup for the current year and the next year and maybe like what is the ramp up?

Pomila Jaspal — Director, Finance.

So I think I will hand it over to Mr. Pawan Agarwal so he is our Chief Corporate Planning so he will explain further on this KG basin.

Pawan Agarwal — Chief Corporate Planning and Strategy

Hello, good afternoon. As madam has already briefed that we are expecting our first oil by May or June 2023 and we will be getting the gas production — additional gas — free gas production in May, 2024. So during this financial year 2023, we will be getting an incremental of oil around 1.9 MMT and the gas to the tune of 2.8 Bcm which will mainly the associated gas coming along with the oil.

And this will be further increased to in financial year 2025 to 2.2 million of oil and $3.8 million of gas with the commissioning of the CPP package, which is expected in the year 2024 so these are the projections.

Varatharajan Sivasankaran — Antique Limited — Analyst

And sir, my second question was on Russia. If you can provide a perspective as to what is the transaction that is happening this afternoon and also in the overall scheme of things how is it proceeding with regard to dispatch of volumes, the profit as well as production volumes.

Pomila Jaspal — Director, Finance.

Your good name?

Pawan Agarwal — Chief Corporate Planning and Strategy

Varatharajan.

Pomila Jaspal — Director, Finance.

Mr. Varatharajan, Mr. Vinod Hallan is here, he is Head Financier from our ONGC Videsh so he will give you the explanation for this.

Vinod Hallan — Head Financier

You know it was put on force majeure by the operator in April at the end the field was producing something around 200 barrels of oil per day and in stages the production actually came down to zero in September, at that time when the gas production was also stopped. So, there was a decree issued by the Russian foundation on taking over the operatorship and assigning it to LLC incorporated in Russia. So that — the partner commercial partner under the PSA were required to apply for shares in the new company, so we all applied on November 8 and our request was approved on my November 9 for allocation of 20% shares.

So there are some conditions precedent which OVL is working very hard to resolve the issue. This was the question — since there are production conditions precedent to be fulfilled by OVL we are yet to receive our allocation of shares, and we are not officially in the project so we are not receiving any information on production officially from the operator.

Pomila Jaspal — Director, Finance.

I hope this satisfies your query.

Varatharajan Sivasankaran — Antique Limited — Analyst

Yes, and I’ll come back in queue.

Operator

Thank you sir. The next question comes from Sabri Hazarika from Emkay Global. Please go-ahead.

Sabri Hazarika — Emkay Global — Analyst

Yeah, good afternoon and congratulations on good numbers. So my question is regarding FY20 for oil and gas production in general. I mean, you’ve got that Sagar Samrat also now installed in Western Offshore. So net of KG 98 how are we seeing the production and also you said that LNG prices were up so that was one of the reason for the further raw-material cost have gone up and you mentioned about that polymer injection, also in the Rajasthan block of Vedanta. So are those also one of the factors behind that increase in Q3, in particular or material cost? These are the two questions.

Pomila Jaspal — Director, Finance.

In fact Q3 is 57%. Rise in the polymer is on account of Y1.

Sabri Hazarika — Emkay Global — Analyst

Okay so, these are the two factors both LNG, as well as polymer both of them contributed to the raw material costs going up, right?

Probal Sen — ICICI Securities — Analyst

And then water injection, also.

Sabri Hazarika — Emkay Global — Analyst

Okay, got it. And second is on the overall production for FY 2024 any other asset also which we can look and some increase in production from say Western Offshore and the likes?

Probal Sen — ICICI Securities — Analyst

Yeah. Mr. Pawan Agarwal he will give you the reply for this.

Pawan Agarwal — Chief Corporate Planning and Strategy

If we go by the performance of the financial year 2020 and 2023, we see this year as a year of consolidation, thereby we have adjusted the decline, what we have been observing for last two or three years. And the next year FY 2024 is going to be the year where will we be keeping the gains of our efforts which have been ongoing for the last two years. So, in this year FY 2023 we will be having 1% increase in the production over FY 2022. That is also after accounting the natural decline, which we are facing to the tune of 6% to 7% in a mature field.

Now, in FY 2024, we expect to have a increase of production by around 4% to 5% with the coming up of the production from 98/2 oil production and the associated gas production. And we have got certain other projects going on in Western Offshore where we will be expecting another 0.5 mmbt of the gains. So we see increase of production in the next year.

Sabri Hazarika — Emkay Global — Analyst

4% to 5% growth will be basically on an overall basis for FY 2023, including KG 98 by two oil?

Pawan Agarwal — Chief Corporate Planning and Strategy

Right.

Sabri Hazarika — Emkay Global — Analyst

And sir, just one add-up so your capex for nine months so as per government data, it is like around INR19,000 crores, is it right or is it just normal capex?

KC Ramesh — Chief Accounts and Financial Reporting Services

Standalone capex till [Multiple Speakers]

Pomila Jaspal — Director, Finance.

So our decision of the capex has been to the tune of INR19,153 crore so that has been till December.

Sabri Hazarika — Emkay Global — Analyst

Okay, and your full-year guidance is still 30,000 or it could be lower than this now considering that nine months has been like less than 20,000?

Pomila Jaspal — Director, Finance.

No, no, we have already now even this month also it has over-achieved. It is around 100.2%, so we expect to achieve the targeted capex.

Sabri Hazarika — Emkay Global — Analyst

Okay, and it will be 30,000 going ahead also, so it won’t increase?

Pomila Jaspal — Director, Finance.

I think around 30,000 maybe little more than 30,000.

Pawan Agarwal — Chief Corporate Planning and Strategy

Sabri if you see in the last quarter basically, there is always an increase in expenditure basically, looking at the trend for last so many years, we expect to be within the target, that is 950.

Sabri Hazarika — Emkay Global — Analyst

Okay, got it. Thank you so much and all the best. Thanks.

Operator

Thank you. [Operator Instructions] We have a question Kirtan Mehta from BOB Capital Markets. Please go-ahead.

KC Ramesh — Chief Accounts and Financial Reporting Services

Mr. Mehta, you are not audible.

Kirtan Mehta — BOB Capital Markets — Analyst

Thank you. Committee report

KC Ramesh — Chief Accounts and Financial Reporting Services

[Technical Issues]

Operator

Thank you. The next question comes from Hemang Khanna from Nomura. Please go-ahead.

Hemang Khanna — Nomura — Analyst

Hi, I hope I am audible?

Operator

You are audible, go ahead sir.

Hemang Khanna — Nomura — Analyst

Just wanted to get a sense on the overall survey expenses that we saw in this quarter, there was a pretty sharp uptick and given the fact that we have a significant expansion plan over the next few years could you help us understand if this would be a more sustainable kind of run-rate for us to build in?

KC Ramesh — Chief Accounts and Financial Reporting Services

Hemang one second.

Pomila Jaspal — Director, Finance.

Mr. Hemang, the thing is that where were certain area, which was under the no-go area around 3 lakh square kilometers so that has been given up by the government and now government has given to us and we will be bidding it under OLP and then we will be going ahead with exploration, which will include the 3D survey expenditure also and that will definitely increase but we expect that around in the next three years, we will be spending around INR32,000 crores in exploration.

So, if we take into account this now we have to carry-out an aggressive exploration in this area which has been given which was categorize earlier as a no-go area, so definitely there will be increase in the survey expenditure also.

Hemang Khanna — Nomura — Analyst

Got it, got ma’am, that is my only question.

Operator

Thank you. The next question comes from Amit Singhi, an individual investor. Please go-ahead.

Unidentified Participant — — Analyst

Hello, good afternoon madam. I want to know what is the amount of revenue from natural gas in quarter three stand-alone and whether all the natural gas prices are covered under APM mechanism and if the APM price reduced to $6.25 how reduction in natural gas versus how it will impact ONGC?

Pomila Jaspal — Director, Finance.

We have got a very robust revenue of — in this quarter you are asking INR11,174 crores so that has Q3 of gas. We are talking only of gas and the Q3, the price has been from 1 October, the prices were revised to $8.57 per million BTU and let’s see — let’s hope that we get good prices now from April 1 also and definitely, if there is some reduction in price it will affect our revenue, but appproximately, you can say INR3,000 crores or so per $1 per BTU million reduction or increase per annum.

Unidentified Participant — — Analyst

Per annum. Yes, thank you. Thank you very much

Operator

Thank you sir, that will be the last question for the day. Now, I hand over the floor to Mrs. Pomila Jaspal, Director, Finance for closing comments. Over to you, madam.

Pomila Jaspal — Director, Finance.

Thank you all the investors. You have been very value — you can say, very satisfactory — I hope our replies have satisfied your questions and if at all, you have some additional questions, you can let us know through a mail to our investor cell also — IFC cell, so they will be able to give you answers on that.

And with this I am thankful to all of you for holding — coming on this investor call and let’s wish best for the future for ONGC. Thank you.

Operator

[Operator Closing Remarks]