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Edited Transcript of ONGC.NSE earnings conference call or presentation 15-Nov-19 4:30am GMT

Q2 2020 Oil and Natural Gas Corporation Ltd Earnings Call

- Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Oil and Natural Gas Corporation Ltd earnings conference call or presentation Friday, November 15, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Subhash Kumar

Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director

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Conference Call Participants

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* Amit Rustagi

UBS Investment Bank, Research Division - Analyst

* Amit Shah

BNP Paribas, Research Division - Analyst

* Manikantha Garre

Axis Capital Limited, Research Division - Assistant VP of Energy

* Nitin Tiwari

Antique Stockbroking Ltd., Research Division - Research Analyst

* Probal Sen

Centrum Broking Limited, Research Division - Analyst of Oil and Gas

* Reena Shah

Ashika Stock Broking Limited, Research Division - Research Analyst

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Presentation

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [1]

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(technical difficulty)

Has decreased as a consequence of all this by INR 140 crore from INR 705 in second quarter of FY '19 to INR 565 crore in second quarter of current fiscal. Similarly, the amount of profit petroleum is lower by INR 438 crore from INR 1,386 crore in H1 FY '19 to INR 948 crore in H1 FY '20. The decrease is mainly at RJ-ON-90/1 by INR 390 -- INR 319 crores.

The operating expenditure has decreased by INR 247 crore, that is a reduction of roughly 5% from INR 5,168 crore in Q2 of FY '19 to INR 4,921 crore in Q2 of current fiscal. The decrease in current quarter is mainly on account of decrease in contractual payment, including hiring charges to the extent of INR 233 crore; repair and maintenance INR 21 crore; transport expense INR 46 crore; and workover expenditure by INR 22 crores. Similarly, the operating expenditure in H1 FY '20 has also been decreased by INR 311 crore. The reduction in H1 FY '20 is mainly on account of contractual payment to the extent of INR 525 crores and workover expenses to the extent of INR 105 crore, which were partly offset by increase in consumption of material to the extent of INR 314 crore, mainly at Dahej Plant by INR 234 crore on account of increase in spot purchase of LNG for use there.

DD&I cost for Q2 FY '20 stood at INR 4,658 crore as against INR 3,531 crore in Q2 FY '19, an increase of INR 1,127 crore, that is an increase of around 32%. The increase in depreciation is due to the implementation of Ind AS 116. The ROU depreciation for Q2 FY '20 is of the order of INR 980 crore, of which INR 459 crore is charged to P&L account.

Similarly, there is also an increase of INR 1,066 crore, that is 14.4% in DD&I cost during H1 FY '20 from INR 7,418 crore in H1 FY '19 to INR 8,484 crore in H1 FY '20. The increase in H1 FY '19 -- the increase in the current quarter -- half is attributable to increase in depletion by INR 220 crores, depreciation by INR 455 crores and impaired -- impairment by INR 422 crore. The ROU depreciation for H1 FY '20 is INR 2,060 crore, of which INR 984 crore is charged to P&L.

During Q2 FY '20, the statutory levies stood at INR 5,861 crore as compared to INR 6,607 crore in Q2 FY '19. That's a decrease of INR 746 crore. And in percentage terms, this is 11.3% reduction. And this, as you would know, is a reduction of the -- is a consequence of reduction in the sales revenue. Similarly, statutory levies have also decreased by INR 1,244 crore. That's a reduction of 9.3% from INR 13,341 crore in first half of FY '19 to INR 12,097 crore in H1 FY '20. The decrease is on account of, again, lower sales revenue of crude oil.

Well, friends, with this, I finish my briefing of the second quarter results for the financial year '19, '20. We will be happy to take questions from you. We would request you to restrict your questions on the financial results only. Thank you. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question of the day we have from Amit Rustagi from UBS.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [2]

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Sir, I have two questions. One, could you elaborate on performance of OPaL? And like what is the cost there? And what profit they made in the first half of the year?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [3]

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Amit, right now, actually, we are looking at results of ONGC. Regarding OPaL, we can give separately the details.

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Amit Shah, BNP Paribas, Research Division - Analyst [4]

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Okay. And sir, what is the plan to arrest the declining oil output at our nomination block? And also, what is the status of KG Basin development?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [5]

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So I think over the past couple of quarters, we have been discussing this issue of production, and we have given certain guidance. Notwithstanding our guidance factoring is that last year our production was down compared to the previous year by around 5% and that trend of reduction continues even in the current fiscal to some extent. So from that perspective, we are going back to the drawing board and looking at what numbers look realistic. This could be a question from a few others also. So I wanted to let you know that we maintain that as far as oil is concerned, we will be able to maintain where we have been producing. And there will be upsurge -- there will be marginal increase from 2021 onwards. So largely, I don't say that there will be massive increase, but we will be holding oil production. And when KG 98/2 production comes on stream, there will be an increase of around 2 million tons on an overall basis. So as far as oil is concerned, till '22, '23 and '24, you can take same level plus terminating -- exit rate of plus 2 million tons on account of KG 98/2.

As regards to the gas, actually, the story is that in '19, '20, we actually produced 25 million -- BCM. Current fiscal, we are likely to be 26.5 plus BCM. So we will be slightly above 26.5 BCM. '21, '22 is when KG 98/2 starts contributing in a major way. So from that time onwards, actually the production will be from 32 BCM to 35 BCM range, so the -- between '21, '22 to '23, '24. Now this is actually lower than what we have previously told. Previously, we had given a figure of around 40 BCM, but now what we have (technical difficulty) '21, '22 to '23, '24, there will be buildup with the '21, '22 rate to be somewhere around 32 BCM and exit rate in '23, '24 would be around 35 BCM. So these -- this is since -- this I thought is likely question from many. So that's what I thought I'll let you know.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [6]

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Yes. Look at FY '22. So you -- did you say that FY '22, our average gas output will be 32 BCM to 35 BCM?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [7]

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Yes. I mean the figure I have in front of me -- no, I'm not saying that. What I'm saying is for FY '22, it is 32.06 BCM, the figure in front of me. That's why I'm saying 32 BCM. And for '23, '24, the exit rate I'm saying is around 35 BCM. So average for that period could be 34 BCM to 34.5 BCM, something in that range.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [8]

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Sure, sir. Got it.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [9]

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No, no, I'll -- covering the first question also since you asked it, and it is the first question, you have privilege to get the full answer. So asked about first fiscal performance of OPaL. So it is actually a loss of INR 1,294 crores, but actually it includes an exceptional item of INR 626 crores. It has something to do with financing and they had obtained some opinion from KPMG as a result of which item has emerged. If we really want to kind of normalize for that, then the loss for first half in OPaL is around INR 668 crores also. That is point number one. Point number two is that this fiscal -- this second half, actually, we are likely to commission the pipeline. In fact, it is -- all approvals as we speak are available. So just all approvals have been received. I think, in a week or so, probably the pipeline will be up and functioning, all the preparations are going on to start the flow from -- flow of naphtha through pipeline.

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Operator [10]

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Next is Reena Shah from Ashika Shah (sic) [Stock] Broking.

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [11]

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Yes. Sir, there has been -- just to the follow-up question what Amit sir has asked. There has been a production decline thing which is happening since a very long period of time. So is there any major technology improvement, where you are looking at to have some investment of technologies from foreign players in order to boost the production going forward?

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Operator [12]

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Reena, I would request you please stay connected as speaker's line got dropped. I am connecting him again. Thank you.

(technical difficulty)

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [13]

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Hello.

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [14]

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Hello.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [15]

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Yes, yes, please go ahead. I got...

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [16]

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Yes. I just wanted to know that the production decline has been a continuous problem in ONGC. So are you addressed -- looking to (technical difficulty) improving any technology or foreign technology to come up in order to boost the production?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [17]

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Sure. I think 2 things. One is that, as you know, all our fields are old. And it is not unusual for fields to face a declining trend. In fact, the global decline rates are also order of around 8% to 10%. And when we have, let's say, opening rate of around 24 million tons, then normally, no efforts were to go in. And normally, there would have been a reduction of around 2 million to 2.5 million tons on an annual basis. (inaudible) what you are saying is that earlier we were able to manage the production level and it has been the case with gas so far. But now, actually, last year, we faced a decline of around 5%. And that continues to be case with H1 of this fiscal, which means that all our efforts actually resulted only in incremental production of only around 5% or so, while in the past we were able to have incremental production of around 10%. And now what are we going to do differently in second fiscal compared to -- and why we think that this -- we should be able to at least arrest this in second half of this fiscal? The reason is that, as you know, most of our production comes from offshore. And because of weather window, quite a few activities cannot be carried out in Mumbai during this time. So all efforts have been planned to arrest the decline as far as Mumbai is concerned during the second half, which actually should have a better rate during the second half of the current fiscal. And we are confident that, that will give the results. Now over a longer term, I think this has been a concerned focus area both for the management and as well as the government. And at the government and policy level, you would have seen quite a few incentives have been given in terms of IOR, in terms EOR, which we are also exploring as to in how many cases we can avail them. And consequently, the focus is on wherever the incremental production can be produced in a cost-effective manner from any of the fields. And we have already identified those fields. So over a medium to longer term, we would be able to get the benefit from those as far as oil is concerned. Gas, we have been notwithstanding setback steady this year, but it has an increasing trend over the next few years or so. Both oil and gas actually will see increase when KG 98/2 comes on stream and is at its peak.

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [18]

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Okay. And sir, one more question, like what is the overall average cost of gas production against what the current rate is $3.23 per barrel? So what kind of...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [19]

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So on an overall basis, it's close to $3.50 per MMBtu -- $3.48 or so.

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [20]

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Okay. So what do you do to address this particular concern because ultimately rate is down $3.23 so?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [21]

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Yes, yes. That's not our metric. In fact actually as far as -- I think you would have seen -- we read the same newspaper as you do or maybe you people read the news and we read it. But you would have seen that certain positive considerations on the gas front are going on at the different level in the government. There has been even a talk of freeing pricing for all the gas. That is one. There have been certain discussions on the gas trading hub also, which have been around for the last 2 years or so. So -- and we strongly believe that there is no rationale in getting an administered price as far as gas is concerned. So when oil is freed, it's another competing source of energy. There is no longer any rationale in continuing to regulate the price of gas. So we believe sooner than later, actually, if the E&P activity in the country has to really be promoted, then the -- there have to be reforms in the area of pricing of gas, and the price has to be discovered by market rather than by formula. And at least from the discussions going on, which we gather from the press, it is being indicated that there is a movement towards that. We do not know of any concrete progress. But press also suggests that there could be certain things imminent in the pipeline.

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [22]

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Sir, just to follow up on this. What kind of expectation on price rise do you see if deregulation happens?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [23]

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So I think here, it's easier one in fact. See roughly 50% of the gas today is sourced from LNG. So while LNG itself is not having great run these days. LNG prices have been quite modest these days. But at the end of the day, probably the competing source because 50% is a very, very large number. So if 50% quantity is priced at 1 level, actually that will become a strong reference. Now quite a few other things could become relevant. And 50% when I'm saying -- when I'm saying LNG prices are low, but that does not mean the price of a molecule available to a consumer. Because then there is a custom duty involved, then there is the cost of regas involved, then there is cost of transportation from the shore to the -- where the consumer is. So even, let's say, modest looking price of around $5 per MMBtu at the shore, at some center (inaudible) it could end up looking like $7 or $8, easily $8-ish. So that's how one has to actually read the LNG price of $5 is equivalent to probably plus $2, $2.5 as far as MMBtu to a consumer is concerned. So that will be a reference. I don't say it will be necessarily equivalent to that. It could be priced off that. So it could be plus or minus that. That is the range within it is likely to be regulated.

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Unidentified Company Representative, [24]

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Madam, could you please introduce yourself?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [25]

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Actually, we had lost the connection in between so we did not get...

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Reena Shah, Ashika Stock Broking Limited, Research Division - Research Analyst [26]

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Yes. My name is Reena Shah. I'm from Ashika Stock Broking.

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Operator [27]

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Next is [Ramesh from Nirmal Institutional Equities].

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Unidentified Analyst, [28]

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A couple of thoughts. One is, can you explain why your dry well costs have gone up? And secondly, can we get some indication about the outlook for ONGC Videsh for the second half in the next 2, 3 years?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [29]

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Okay. So I think I'll take the second one first. The ONGC Videsh actually will hopefully -- I mean oil and gas, upstream especially, performance is largely a function of the oil price. As far as ONGC Videsh is concerned, its production has stabilized at the current level with current level of activity. So consequently, we expect that any variation in performance in the short run will be affected by the prices. So top line will be impacted by the prices and consequently, that will also impact the overall profitability. Since you also said 3 to 4 years. While 3 to 4 years, we may not expect anything from Mozambique because -- but by the end of that actually term, if everything is in place by that time, probably Mozambique will start producing LNG. So certainly from around 3, 4 years onwards, actually the performance of ONGC Videsh should see a major uptick once the LNG from Mozambique also starts flowing. So that is one. And I think you asked about...

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Unidentified Analyst, [30]

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The increase in the dry well cost?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [31]

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Yes, yes. So this year, we actually had -- we looked at wealth at Mumbai offshore, there was wealth to the tune of around INR 1,241 crores there were written off. KG offshore, it was INR 1,007 crore; Cauvery onshore INR 160 crore; Assam-Arakan -- so a number of wells, which have been there for some time. And we -- this is a process of review which happens every quarter and a very strict review at the end of each year through which whatever are the longstanding wells and we do not have an immediate plan to kind of benefit from them, so we actually write them off. So this year, actually, there has been an increase of INR 1,030 crore in the cost of unsuccessful wells and largely contributed by wells from Mumbai and KG offshore.

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Unidentified Analyst, [32]

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Just a follow-up on the gas and LNG, what is the kind of incremental margins you can get from the gas output from KG 98/2. And similarly, on the Mozambique LNG, and you said significant upside in OVL, what kind of indication can you give in terms of the percent margin or returns on the LNG from Mozambique?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [33]

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So what was your first question?

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Unidentified Analyst, [34]

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The first question, in terms of the KG 98/2 volumes in gas which you expect over the next 2, 3 years, what is the kind of margins you can expect, supposing, assume you are about, say, $6 because it depends on the operating cost? So can you give us a guidance in terms of what is going to be the operating cost per MMBtu compared to the current cost in existing wells or simultaneously some of the margins you expect?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [35]

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Yes, yes. Operating cost like you said around $6, but $6 could be the all-inclusive cost, it cannot be the operating cost of gas. So operating cost will be substantially lower. Let me see if I have that number immediately. As far as the realization of the price is concerned, under the existing regime, you know that we have a given price for it. And naturally, as you would have read, actually, we are struggling to sell the gas at that price because HPHT gives one price and actually, it is difficult to sell at the price which is currently prevailing. Now -- right now for this particular 6 months, the reduced price is $8.43 per MMBtu. And this is also something which probably we will not realize the entire $8.43, we may realize something less than that. So going forward, if the kind of reforms we talked about and which are being talked in the press, then probably it will cease to be a function of a formula or the cost, but will become -- actually what will become relevant is the cost of alternative fuels in which case the LNG price could become relevant. And as I said, that for this or any other molecule, the relevant price for a molecule to the consumer could end up being around $8 or so. Now our gas is also not exactly at the same place at where the consumer is. So our gas will also involve transportation, there will be logistic challenges in quite a few places. But then one can say -- take it this way that if LNG price was to be around $6 and then one were to add around $2 to the rest of the add-ons, so it becomes $8. So $8 minus whatever is the cost required to deliver the cost -- that gas to the consumer could be a fair expectation. In terms of OpEx, you asked, actually for the gas, OpEx will be sub $2 and in the range of around $1.70 per MMBtu because CapEx is already incurred.

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Unidentified Analyst, [36]

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So on the OVL-Mozambique project, can you give us some indication about the potential impact on OVL's financial once that LNG is available?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [37]

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So you know that the first phase is to train 6.44 x 2, as I recall. It's not that I review it on a daily basis. We do get a view on it periodically. And ONGC has a share of 16%. So that is the kind of equity volumes ONGC will drive from that. And EPCC, which is the contract under which it is regulated has one of the most benevolent conditions. And during the initial phase, the government take is very, very low. I mean it could be even in single digit. So under those circumstances, you can easily look at it. I'm not giving any guidance because at the end of the day, all these are in the realms of possibilities. There is no definitive date on which volume is coming because I don't want to give an impression that it is actually coming from a given date. But since you know that operators have also changed, substantial progress is happening there. So volume should be coming during that time.

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Unidentified Analyst, [38]

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More than 11 tons contract at all, long-term contract at all?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [39]

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Yes. So long-term contracts are already there at different price levels, which we also hear only from the press because details are available with the consultant.

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Operator [40]

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Next is [Ashish Manjrekar] from (inaudible)

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Unidentified Analyst, [41]

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My question was regarding the debt, which is currently standing on the books. So since the volume is declining, then by what time do you expect the debt that you have on the book to be cleared?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [42]

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Look, I don't know which debt you are talking about. Are you talking about debt at the company level? So it's around INR 10,326 -- INR 10,396 crore as on 30th of September in ONGC balance sheet. And our net worth is close to INR 200,000 crores. So that's around 5%. Per se, it's not at a level where one should be in any way alarmed about the figure.

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Unidentified Company Representative, [43]

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Today it's INR 7,000 crores only.

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Unidentified Analyst, [44]

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Okay. My worry was because the volume was going down, and that's why the question on that.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [45]

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No. I mean on volumes also, I told clearly that's for a couple -- as far as oil is concerned, we may hold at current level for 1 or 2 years and then there will be -- once KG 98/2 comes up, there will be increase. Increase may not be as expected to close as we are -- we had earlier told about gas. Gas also from current level, we do anticipate '22, '23 to be exit rate of around 35 BCM or so. So on both the fronts, we see that the value will increase. And we also see that from petrochemical, the contribution should increase over this period because if you would have seen the OPEC by OPaL over the period is increasing. And we do anticipate that, that will also even if OPaL is technically a separate entity, actually all feedstock is taken from ONGC. So that actually value-added product contribution to ONGC will be significantly higher than the current level. So all -- on all 3 fronts as well as oil, gas and value-added production is concerned, we think that the figure will be higher over the next 2 to 3 years.

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Operator [46]

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Next we have Probal Sen from Centrum Banking -- sorry, Centrum Broking.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [47]

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I just had one follow-up question to the first question that was, of course, asked where you thankfully clarified on the production targets. But just looking at a more near-term picture for this half as you would have seen with the kind of decline, what is FY '20 looking like? I mean if we were to try and look at an outlook for the second half, will the trends that we have seen in H1 broadly continue in which case you are sailing at maybe a 3% to 4% decline in oil and maybe a sort of flattish kind of gas output for the year?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [48]

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So as far as oil is concerned, realistically we will -- we think that our production is likely to be -- I mean we have a number somewhere around 23.7 MT to 23.9 MT, that's the range, we think we should be in. And as far as gas is concerned, we think it is close to 25 BCM.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [49]

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Okay. 25 -- so 23.7 MT for oil and about 25 BCM for gas, we still think that we can get to this number for the full year?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [50]

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Yes, yes. 23.7 MT to 23.9 MT and 25 BCM for gas.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [51]

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Okay. Sir, one question I have on Mozambique. You mentioned about the potential from that plant. Can we get a sense of the pricing that you are sort of discussing with potential offtake now that the FID is done?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [52]

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My sense is the same as you would have. I mean as a consortium, you don't get full information. Maybe the team has better information than me. So the team in OVL would know it better than what I know because this being price-sensitive information, in any case, we do not discuss. And we do not have access to -- we don't need to have this information with us. So we do not retain it.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [53]

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Okay. Sir, if I can ask a separate question, sir? Currently, with the FID being in place, what is the time line for the first train to be actually commissioned and gas to -- gas sale to start from that project?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [54]

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So it will be '23, '24. Exact date I can give by the end of this call.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [55]

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So our -- we expect gas sales to start because trains to start.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [56]

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Yes. Most likely, now it is confirmed, it is H1 '24 -- H1 2024.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [57]

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That would be the financial year, sir, or the calendar year? Sorry, to ask.

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Unidentified Company Representative, [58]

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Calendar year.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [59]

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Calendar year.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [60]

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H1 CY '24 is when we expect gas to start.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [61]

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Yes. Yes. Yes.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [62]

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Okay. And last question, sir, any update to CapEx guidance for this year as well as next year?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [63]

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So CapEx during the current fiscal will be at the same level, we anticipate. And as far as next year is concerned, it will be slightly higher. So we are in process of compiling the figures. Figures were higher. And we are actually looking into the figures. But definitely, it will be higher than the current fiscal because there will be some payments relating to KG 98/2 which will be coming this year. So the next fiscal could be higher by around 10% or so. But this number is not firm, so I'm not confirming. But the figure could be in that range.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [64]

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So around INR 30,000 crores give or take for this year.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [65]

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Slightly higher. For this fiscal, we think INR 32,000 crores and probably INR 35,000 crores for next fiscal. Between 2, you can think it this way that between 2 it will be INR 67,000 crores or so. INR 65,000 crores to INR 67,000 crores. So it would depend on how -- we'll look at the progress and allocate between 2 years.

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Operator [66]

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Next, we have Manikantha Garre from Axis Capital.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [67]

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Sir, just with respect to the domestic gas pricing, you have mentioned that if at all it is confirmed, there is a possibility of that coming at a discount with respect to your transportation cost versus the import parity cost for the spot LNG, which is roughly maybe $6.5 in the worst case. So just thinking in this angle, last 4, 5 years, we see that CNG and domestic PNG growth has been mainly because of the lower APM gas pricing. And if the deregulation of the domestic gas pricing happens, wouldn't that hamper the CNG and domestic PNG growth? And wouldn't that hamper the India -- Indian government's ambition to increase gas usage? If you can give some color on that angle as well that will be helpful.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [68]

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No just -- and frankly speaking, I have no great idea of economics of these 2 sectors, so I will not be able to comment. But only one generic comment that at the end of the day, the country can have or aspire to have a gas-based economy or improve the composition of the fuel mix only if gas also gets the right price. And with no great -- big discovery having been made in the recent past, more and more quantity of gas will have to be imported to meet the domestic need, whether it is CGD, PNG or any other sector. So from that perspective, in any case, if the domestic gas production was to stay at current level, then also the increased prices would be chased by all the users. That is one. And if there is a huge difference between the way you are paying for the imported molecules versus what you pay to the domestic producer, it will end up disincentivizing the domestic E&P sector. So it's only a logical expectation and what I only said was that this happens to be the subject matter of discussion in newspapers also. Apparently, it has been realized that you need to free it up and that as a result of which the gas prices could look up or become remunerative. In fact, I mean it works both ways. At the end of the day, global LNG prices if theoretically were to fall further, then it could benefit. But at the end of the day, probably it would be better to have a supply of molecules rather than having just 10% or 20% or 30% of domestic supply at a very depressed price, which serves neither the industry nor the -- neither the consumer nor the producer. So -- and I have a vague idea that it should work CNG -- for CNG and PNG also even if prices of LNG were not to rise maybe 3x or 4x, but I have no great idea, so you would know it better.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [69]

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Yes, sir. Just to follow up on this only. So would you think that if we get the deregulation, our gas production targets, say, that we'll be able to produce more because of higher prices from the existing fields and from the fields that are going to come online over the next few years? Would we be upgrading our gas production target?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [70]

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So as such, we are not curtailing any production only because of the prices, frankly speaking. So as of now, whatever discoveries are there, we have plans to put them on production. There are 1 or 2 projects, of course, where we are on sidelines and we have kept them on hold. We have been repeatedly writing for a review of the prices because they become remunerative only at, let's say, plus $6 per MMBtu kind of prices. And if then you don't meet that price at a given point in time, you need to have a visibility that those prices will be available for an extended period of time. So it would be only 1 or 2 projects, but those are not going to substantially improve the quantity of gas. Quantity of gas production would increase only if we have some major find.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [71]

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If I can ask one other question, sir, would you be able to provide the 2P reserves of OVL, oil and gas apparently?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [72]

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Please repeat your question.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [73]

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Yes. Can you please provide 2P reserves of OVL if you have that handily available?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [74]

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Yes, yes, those are available. Just a minute. So overall figure is 675, oil is 340, and gas is 335.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [75]

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And would you have the net debt figure of OVL as of H1?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [76]

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Yes, the gross debt is USD 5.8 billion. And we'll give you cash and cash equivalent figure as well. The cash and cash equivalent is INR 5,099 crore. So okay, so that's -- I mean you can take it to be around $5.8 billion to $5.9 billion. That's gross. $5.8 billion is gross and 5,000...

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Unidentified Company Representative, [77]

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Minus INR 600 crore.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [78]

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No, INR 5,099 crore.

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Unidentified Company Representative, [79]

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INR 5,099 crore.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [80]

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Okay, okay, so that's around $700 million. So you can take it $5.1 billion, $5.2 billion as the net debt.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [81]

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Sure, sir. If I can squeeze in one more question here. Are we thinking of bringing in some strategic investments for our HPCL subsidiary? Are we thinking something on those lines? Sir, do we have any -- if you can provide some thoughts on those lines?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [82]

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No, we are discussing the results actually. And we can have this discussion sometime later.

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Operator [83]

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Next, we have Nitin Tiwari from Antique Stockbroking.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [84]

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So first one is bookkeeping (inaudible) one. You said that your crude production target for the year FY '20 is between 23.7 MT to 23.9 MT. So basically, that implies that instead of a 4% decline that you have seen for first half, you are possibly targeting a 2% decline for FY '20, is that correct? And if that is the case, then which fields are we expecting to basically be the incremental contributor from here?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [85]

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So large contribution will be from -- I mean it will be from offshore, and we anticipate things to improve at all the 3 assets.

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Unidentified Company Representative, [86]

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A lot of projects are going on, a lot of projects are implemented...

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [87]

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Projects are basically going on in your 3 large assets and you expect contribution from those fields to basically -- so if we can like have a clear sort of guidance in terms of how much production is expected from ONGC and then JV for both FY '20 and '21 for both crude and nat gas?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [88]

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So I've told, as far as this year, we expect 23.7 MT to 23.9 MT.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [89]

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Right. That's for the -- that's the ONGC and JV combined, right?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [90]

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That's the ONGC and JV combined.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [91]

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So if we bifurcate like any other individual...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [92]

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2.93 MT is likely contribution from JV.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [93]

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All right. And for FY '21, sir?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [94]

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FY '21 is -- so it's around 24.1 MT.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [95]

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All right. And the JV contribution would be?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [96]

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Out of this, JV contribution is 2.85 MT.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [97]

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So similar figures for natural gas also, if you can please?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [98]

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So for '21, it is 25.9 and 0.7 roughly.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [99]

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0.7 and 25.9? This is for FY '21, sir?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [100]

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Yes.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [101]

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All right. And for FY '20, 25 BCM is what you've indicated as the gas. And JV would be how much?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [102]

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0.8 BCM.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [103]

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0.8 BCM. Right, and sir, secondly, my question is related to your integration with HPCL. So how has the merger gone? I mean like, as a promoter, are you obligated in any way to invest in their projects or to support them incrementally in form of equity or it's mostly like a financial investment? And then like in extension to that, what's happening with MRPL and HPCL merger? Is there any progress over there, if you can give some color?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [104]

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So while -- I mean this discussion is for discussing the results, but I can also say that as far as the integration is concerned, it is going on perfectly well. At operational level, teams are working actively, and we are working together to see that whatever inefficiencies were there or whatever infrastructure could be shared across the group, not only between MRPL and HPCL, that is shared such that both the entities on an overall basis end up getting the optimal results. So that is how the process is going on. Definitely it's a strategic investment. It's not a financial investment. And over a period of time, the group will have more and more synergies. And there will be structural adjustments or changes also. But right now, they will happen slowly over a period of time, depending on the way everything falls into place and fits in the strategy.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [105]

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Right. Sir, does ONGC have freedom in terms of allocating its crude oil production to HPCL in any way or...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [106]

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That you know, they do not. In fact, the crude is allocated by ministry.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [107]

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All right. So there is no freedom that ONGC has over there?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [108]

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That certainly is the existing system of allocation.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [109]

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Right, sir. And sir, one question around like you mentioned that there are a few projects which are stalled because the requirement for gas price is in excess of $8 per MMBtu. So I just wanted to understand that when...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [110]

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I said -- probably, if I remember, I said figure of $6.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [111]

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Right. So I just wanted to...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [112]

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I did qualify on a sustained basis.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [113]

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Right, sir. Sir, I'm just trying to understand that when you take these decisions, these project economics are at project level or at company level because if you produce the gas from the field, I mean the cost would get averaged over a larger production which is coming from, say, a less costly field?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [114]

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No, no, always -- see, you are making an incremental investment in a defined project. So economics is always of a project. How it adds up to the overall economics is a different thing.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [115]

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Right, sir. Okay. So you won't evaluate it at a company level, that incremental production coming in and like there are other fields as well which have to be seen?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [116]

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No even -- see even at company level, economics is not different. See if your marginal investment, for example, starts making losses, so your profit comes down. So even at company level, suppose you were making, let's say, $100 prior to some such costly project and you start making $90, so one's view is that you are still making $90, so please go ahead. No, the idea is that you should not be worse off than where from you started. And consequently what matters is the contribution from the project. So is it making its cost of cap -- realizing its cost of capital and making some incremental addition or not. That's the criteria. It's not -- nothing on company level per se.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [117]

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Right. And sir, lastly, like just 2 updates. One is with the Deen Dayal asset, like what's the update on Deen Dayal? And secondly, I believe that you signed some MOUs in Russia recently, so if you can give some color on these 2 things.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [118]

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I do not have immediately the details of MOU signed in Russia, I would not be. But those are not the MOUs which affect the operations or our profitability or -- in any way on an immediate basis. That is one. As far as Deen Dayal project is going, it is going on fine. We have drilled all the wells which needed to be drilled. All projects are -- all the -- 4 other constituents of the projects are going ahead as per schedule. As you would know, some projects, there are always minor slippages. But we think that we'll be able to arrest them within the kind of time lines we have. And -- but at the end of the day, there could be delay of 1 or 2 months here and there. So it's not that I'm saying that whatever was envisioned initially, we'll be able to do exactly on that date, but there is no red flag as on date per se. That's on it. So we would be realizing the project objectives in time. In terms of probably realizing the peak rates, we would be delayed. And that's why -- that's one reason this time I have told very clearly that we -- in terms of, especially gas, earlier we had given a guidance that we would be touching around 38 BCM to 40 BCM by this period, which we are revising downwards to '23, '24 timelines. We anticipate that it will be around 34 BCM, 35 BCM only. Actually buildup also will be affected to some extent.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [119]

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Right. So what is the kind of production we are looking at Deen Dayal and by what time frame are you looking at commissioning?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [120]

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So you are talking of HPHT asset. So HPHT asset actually, we are in the process of fractionating that well #5, and we will drill well #6 and 7. And depending on the well number -- results of well #6 and 7, we will look into take a pause and decide how to go ahead with the project. I took it actually -- your previous question, I actually confused it with KG 98/2, so pardon me for that.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [121]

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No worries, sir. So that's the time for -- that's all from my end. Lastly, so HP is basically a strategic investment, it's not a financial and it will continue to be with you with strategic integration. That's what the broad understanding is. Is that the correct understanding?

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [122]

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Yes, yes. We were never in doubt actually. That's a very good question, actually.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [123]

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Right. Because sir, there was some speculation around like that government has...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [124]

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No, no, we -- I repeat, we read the same press as you do. I mean you people -- there's some news and we read it. That's very amusing at times.

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Unidentified Company Representative, [125]

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This -- now it should be the last question basically.

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Operator [126]

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The last question of the day we have from Amit Shah from BNP Paribas.

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Amit Shah, BNP Paribas, Research Division - Analyst [127]

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Sir, actually my...

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [128]

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Hello. I said to begin the last. Hello.

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Operator [129]

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Yes. You are audible.

(technical difficulty)

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Amit Shah, BNP Paribas, Research Division - Analyst [130]

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My questions are answered.

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Subhash Kumar, Oil and Natural Gas Corporation Limited - CFO, Director of Finance & Director [131]

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Okay. So since there is no question, we can (technical difficulty) everybody on the conference call, and I greatly appreciate the organizers and everybody on the call for having taken time off for this earnings call. Thank you very much.