ONGC Expects Lower Well Write-Offs in Next Quarters

ONGC reported a 19 per cent year-on-year growth in its first quarter net profit to Rs 4,781 crore on revenues of Rs 21,813 crore. Analysts polled by NDTV had estimated its net profit at Rs 5,700 crore on sales of Rs 21,050 crore. ONGC failed to meet the Street's profit expectations as the oil & gas major saw higher depreciation and amortisation expenses during the quarter due to change in depreciation policy and exploration write-offs. Aloke Kumar Banerjee, director-finance at ONGC, spoke to NDTV about its first-quarter performance. (Watch) Why there was a write-off of around Rs 3,800 crore during the quarter? We do a lot of exploration of wells. Some of them are written off because they are dry. This is natural phenomenon in the oil and gas industry. The only thing is that the write-off occasion need not go evenly with time. It happens when a decision is taken by technical assessment of the well. When it is decided that it is a dry well, then we write it off. It may happen that in one particular quarter it may go up and in the next quarter it may come down. It is coincidence that this quarter we have written some high-cost wells. This is a very natural phenomenon. Maybe that this figure appears to be little aberration, next quarter there may not be any deep-water costly well write-off. How do you show these write offs? We go by very simplistic steps. If we decide that a particular well is to be written off, then we write it off. This quarter this is more. If you see last year, in the same quarter this was much less. When it happens, we account it like for that. This is purely a transparent step in our accounting. The first quarter write-off is half of what you have written off for FY14. What is the outlook? It may happen that in next three quarters we may have a lower write-off. We have already written off all these major high-cost wells. Definitely we may expect that in the next few quarters these write-offs are expected to be on lower side. This is a continuous process; we go on drilling our exploratory wells, so now we had a very major programme in every quarter in the east coast. So this is a continuation of that; some of the wells have been written-off. Could you elaborate on ONGC's drilling and exploration activities? Normally, we drill around 450 wells in a year and out of that exploration happens in around 175 wells. So our success rate is normally 3:1. But it is not evenly spread out over the quarters. So it is quite a natural phenomenon and it may go up in a particular quarter, it may come down in the next quarter. But if you see the overall four quarters together in a year it gets even out normally. It is expected that next quarter onwards it may come down. The subsidy that you had to bear in Q1 was actually lower than what many were expecting. What is the outlook for the year? The government has fixed a subsidy rate of $56 per barrel for ONGC. But actually our subsidy is coming to $62-$63 because we process the condensate for value-added products. We expect that in coming year the subsidy rate will come down for us because the government has increased the cost of diesel and has reduced the number of low-cost LPG cylinders. Although it is difficult to predict because of the international price of crude oil and exchange rate, but it is likely to come down. We have already requested the government to reduce our subsidy share.

ONGC Expects Lower Well Write-Offs in Next Quarters

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