State-owned Oil and Natural Gas Corp (ONGC) today said it will not cut capital expenditure despite its revenues falling because of international oil prices slumping to 12 year low.
The fall in cost of services, however, will lower the financial outgo, it said.
“There will be no cut in capex activities. In fact there will be an increase, but financially there will be a reduction because of the fall in services cost,” ONGC Chairman and Managing Director Dinesh K Sarraf told reporters here.
ONGC will carry out the same amount of activity as it had planned — drilling of number of wells, seismic surveys and field development; but the money spent on these will be lower as the cost at which some of the services which are available in the market are lower now, he said.
The company is slated to spend Rs 36,249 crore on capex in the current fiscal ending March 31.
Drilling rigs and associated services are available at the cheapest rate in two decades, he said.
He said the fall in crude oil prices to below USD 30 per barrel was a “matter of concern” for an exploration and production (E&P) company like ONGC.
“But even in this situation I see a lot positive things like the cost of services (drilling and rigging cost) have come down to a great extend,” he said.
ONGC’s strategy “at this point of time is that we would do more and more drilling, exploration and production. In future when the price of crude will go up then we would benefit from this”, he said.
The company is only looking to optimise operational cost to cut corners in times when the price of crude oil has fallen below its cost of production of USD 36 per barrel.
Sarraf said in terms of physical activity ONGC’s capital
expenditure will be increase. “However it will look that the capital expenditure in monetary terms will reduce to some extend. But that does not mean that we will do less work physically. The expenditure will be reduced by 10 per cent in the next fiscal (2016-17).”
ONGC, he said, wants to take advantage of lower prices. “There will be an overall 10 per cent reduction in capex financials.”
UP Singh, Additional Secretary in the Oil Ministry and a director on ONGC board, said generally 60 per cent of the overall capex is spent on drilling and services.
“And this is the the best time to do that because service rates are falling. ONGC will take advantage of that,” he said.
Oil Minister Dharmendra Pradhan said ONGC being the national oil company it will continue to invest no matter if prices fall.
“In this situation, the company will benefit in mid term because there will be more discoveries and production of oil will increase. We expect substantial increase in our production in next two years,” Sarraf said.
With cost of services, rigs, oil field material, platforms and new constructions being very low, ONGC see this a opportunity to boost capital expenditure activities to raise production and reserve appreciation in the future.
“The financial expenditure may come down but at the same time the physical activity will increase because the cost of services are much lower than they were earlier,” he said, adding that the company will definitely earn profit this fiscal.