Chairman's Speech at the
16th Annual General Meeting of
Oil and Natural Gas Corporation Ltd
By Shri R.S. Sharma, Chairman & Managing Director

New Delhi, September 23, 2009

 



Dear Members
On behalf of the Board of Directors of your Company, I am extremely delighted to greet each and every one of you with a very pleasant Namaskar and a warm welcome at the 16th Annual General Meeting of your Company. I would like to convey my sincere thanks for your valued presence on this extremely significant occasion for all of us.

The Annual Report for the Financial Year ended 31st March 2009, along with the Director's Report, Audited Annual Accounts and Auditors' Report of your Company are with you for some time now, and I assume them to be taken as read.

It is my pleasure to share with that your valued Company has again achieved commendable performance during the fiscal 2008-09, despite the fact that the global economy has been in acute downturn for more than a year.

During the year, your company saliently achieved:
  1. Highest level of Initial In-place hydrocarbons accretion in last two decades from domestic fields.
  2. Highest accretion of Ultimate reserves in last 18 years from domestic fields;
  3. Reserve Replacement Ratio of more than 1 for the 5th consecutive year;
  4. Turnover and Net Worth recorded new highs;
  5. Retained its position as the highest profit making company in the country, in Private or Public sector;
  6. The Net Profit of Rs. 16,126 Crore, marginally lower than the previous year (Rs.16,701 Crore), was despite supporting downstream PSUs with the highest level of subsidy discount of Rs. 28,225 Crore.
I am happy to inform that your Company's performance and efforts have been well recognized the world over. You may appreciate that these achievements amply demonstrate the commitment and dedicated endeavours of your Company towards value creation for sustained growth. These laurels also reinforce our position as a leading corporate which continues to support economic prosperity of the country. The performance is all the more appreciable, if evaluated in the context of tremendous upheaval in the Global economy in the last fiscal.

The economy
The year 2008-09 will go down in the history for one of the worst global recessions, which witnessed crumbling of established institutions, bankruptcy of major investment banks, closure of companies, liquidity crunch, job cuts, etc.; all extremely painful. Crash of the financial giants sent an economic shock wave all across the world. The advanced economies started shrinking and many entered into the negative territories. The world now describes it as the worst economic recession post World War-II.

However, during this depressive phase, China and India demonstrated remarkable resilience. These economies did slip down from the pedestal of 9-11% GDP growth rate, but still managed to register growth rates much better than the major economies in pre-downturn period. As for India, The International Monetary Fund (IMF) survey, "World Economic Outlook", in its update on July 8, 2009, has projected India's growth rate at a healthy 6.5% in 2010, second only to China amongst the major economies.

The Indian economy could valiantly withstand the global meltdown mainly due to admirable resilience from some of the Indian companies, particularly PSUs, which is personified by your own company, ONGC. Amidst global trend of shelving and stalling of projects, the Board of your Company decided to go ahead with its planned investments in core E&P activities and in other major projects. This was in keeping with our resolve to lay strong foundation for sustainable future growth and value creation for the shareholders.

Industry Scenario
Responding to the economic meltdowns, oil prices nose-dived from the peak of USD 147 per barrel in July'2008 to USD 33 per barrel in December' 2008. The prices crashed down not because of any supply glut, but due to sudden slump in demand which increased the spare capacity and in turn the sentiments got depressed in the oil markets.

However, we must realize that this spare capacity cushion is bound to erode once the economies recover which seems to be happening faster than expected. We apprehend this may again bring uncertainty and volatility in the markets. Steep decline in crude oil prices and the crunching credit squeeze already had a telling effect on investments in development projects. Consequently future supply growth is bound to suffer, with pressures on oil prices. The crude prices have already moved up steadily, and are currently hovering around USD 70 per barrel.

Even otherwise on supply side, all mature producing fields across the world are now in a phase of natural decline. Some reports suggest that many of them are declining at a very alarming rate of over 9%. Consequently oil production has dipped or at best remained flat in almost all the regions except OPEC and FSU countries in the year 2008.

However, there are few silver linings like the recent BP discovery, Tiber, in the Gulf of Mexico, which augurs well for the future. We know that most of recent discoveries are highly capital and technology intensive and therefore would require a favourable crude oil price regime. Thus, resources like the oil sands, heavy oil, pre-salt discoveries in deep and ultra-deep water locales, etc., may be economically viable only above a price range of USD 60-70 per barrel.

I am glad to share with you all that these predicaments haven't been allowed to dampen your Company's spirit which is reflected in the Capital Expenditure (CAPEX) of Rs. 21,820 Crore, the highest-ever, for domestic activities in 2008-09; more than 94% being on the core activity Exploration and Production (E&P) of hydrocarbons. OVL invested Rs. 16,105 Crore, again the highest-ever, towards overseas projects during FY'09. These investments were guided by the strategic pursuits of your Company and the listed priorities which have been mapped for sustained growth.

Strategic Pursuits & Performance
  1. Intensified exploration
    During FY'09, your Company accreted 284.81 million metric tonnes of oil equivalent (MToE) of in-place volume of hydrocarbons; the highest in the last two decades. Ultimate reserve accretion of 68.90 MToE from domestic operated fields is again the highest in 18 years. This is the result of the first strategic pursuit of your Company i.e., 'intensified exploration' which aims to create new oil and gas assets on continuous basis.
  2. Improving recovery factor
    The second strategic pursuit of your Company has been 'improving recovery factor'. Your Company has systematically been implementing Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes in 15 major fields since 2001. These schemes have helped in improving recovery factor in these fields from 28% in 2000-01 to 33% in 2008-09. During this period your Company invested over Rs. 14,000 Crore in fourteen IOR/EOR schemes, which have already been completed. Seven schemes are under implementation with envisaged investment of over Rs. 16,000 Crore.
  3. Equity Oil & Gas
    Your Company is aggressively pursuing for overseas E&P projects for equity oil and gas; the third strategic pursuit of the Company. ONGC Videsh Limited (OVL), the wholly-owned subsidiary of your Company, is now participating in 40 E&P projects in 16 countries. During FY'09, OVL acquired seven E&P projects in five countries, two being producing properties. As a result, the ultimate reserves accretion of 135.08 MMT during the year has been the highest-ever. This fiscal, OVL's share in equity oil and gas has been 8.78 MMT of O+OEG.
Production
Your Company maintained production levels at 61.23 MToE of O+OEG during FY'09, from its domestic and overseas assets; marginally lower than the highest-ever production of 61.85 MToE during FY'08.

Financial Appraisals
  1. ONGC
    ONGC, on a standalone basis, registered highest-ever Sales Revenue of Rs. 63,949 Crore, 5.7% more than the previous year. Net Profit at Rs. 16,126 Crore, however, has been 3% lower than the previous year, on account of sharing under recoveries of the Oil Marketing Companies (OMCs), at the highest level of Rs. 28,225 Crore, compared to Rs. 22,001 Crore during the previous fiscal FY'08.
  2. ONGC Videsh Ltd. (OVL)
    The consolidated gross revenue of OVL increased by 9.3% from Rs. 16,934 Crore in FY'08 to Rs. 18,504 Crore during the current fiscal FY'09, and consolidated net profit increased by 17% from Rs. 2,397 Crore to Rs. 2,807 Crore.
  3. Mangalore Refinery & Petrochemicals Ltd. (MRPL)
    With highest ever Refinery crude throughput at 12.59 MMT, MRPL registered its highest ever turnover of Rs. 42,719 Crore during FY'09. The Profit After Tax was however marginally lower at Rs. 1192.54 Crore due to non-availability of MAT credit during the Fiscal FY'09.
  4. ONGC consolidated
    The consolidated Turnover of ONGC Group of Companies at Rs.1,10,562 Crore is up by 6.7% over last year figure of Rs.1,03,648 Crore. Consolidated Net Profit of the Group is very marginally lower at Rs. 19,795 Crore, against Rs.19,872 Crore in FY'08.
Dividend
Your Company had paid an interim dividend of Rs. 18 per share (180%) in December 2008. After your approval, in this AGM today, the final dividend of Rs.14 per share (140%) shall be paid in the next few days, making an aggregate dividend payout of Rs. 32 per share (320%) same as previous year. The total dividend will absorb Rs. Rs. 6,844 Crore; besides Rs. 1,163 Crore payable as tax on dividend.

Steering Growth
  1. Exploration acreage
    Your Company has the distinction of having the largest exploration acreage in the country. ONGC has got 19 blocks in NELP- VII (18 blocks as operator) and with these the total number of NELP blocks with ONGC as on 30.06.2009 is 82 blocks (72 as operator) besides 79 nomination blocks. Through intensified exploration, your Company endeavours to expeditiously convert Petroleum Exploration Licenses (PELs) to Petroleum Mining Lease (PML).
  2. New streams
    Expeditious development of discovered fields has always been the priority for your Company. Forty five discoveries, out of 111 made during FY'03 to FY'09 period, have already been brought on stream. Systematic efforts are on to bring balance discoveries to production stage after comprehensive appraisals.
    A new dedicated business unit "Eastern Offshore Asset" has been constituted this year for fast track monetization of East Coast discoveries. The oil discoveries in G-4-6, GS-29-1 and G-4-5, part of discoveries in KG-DWN-98/2 and in the PEL Block IG will be developed through integrated East Coast hub.
    During FY'09 your Company brought five more new and marginal fields to production. Now 44 such fields are on stream which contributed 1.62 MToE of O+OEG production during the year.
    Production from RJ-ON-90/1 pre-NELP block, in which your Company has 30% participative interest, operated by M/s Cairn Energy India Pty. Ltd. (CEIL) has commenced since 29th August 2009. Your Company is aggressively pursuing with the Government of India for reimbursement of 70% of Royalty which it is liable to pay on behalf of the joint venture partner as per Production Sharing Contract (PSC). Assurances to this effect were made by the Government at a very senior level in the late 90s.
  3. Overseas production
    OVL, which acquired Imperial Energy in FY'09, has raised production from Imperial's fields, situated in the Western Siberian province of Tomsk, from 6,000 barrels of oil per day (bopd) to 11,500 bopd in just 6-7 months of taking over. In addition, production from BC-10 block in Brazil commenced production from 13th July 2009.
  4. MRPL
    Another subsidiary of your Company, Mangalore Refinery and Petrochemicals Limited (MRPL) achieved the highest-ever throughput of 130%. MRPL's capacity expansion project from 9.69 MMTPA to 15 MMTPA is progressing well mechanical completion is expected by October, 2011.
  5. E&P Infrastructure
    Your Company has been systematically investing in technology; production systems; renewal & revamping of old infrastructure with the objective to sustain production levels.
  6. New & Alternate sources of energy
    Developing new sources of energy, beyond hydrocarbons, is your Company's yet another priority. Your Company made a significant Coal Bed Methane (CBM) discovery in Bokaro during FY'09. Production from the earlier discovery in Parbatpur is expected to commence this year.
    Exploration and exploitation of Underground Coal Gasification (UCG) has been given a renewed impetus. Environmental clearance for the first UCG Pilot site at Vastan, Gujarat has already been obtained and its design has been firmed up. Pilot project is expected to commence production next year.
    Your Company has also embarked on a pilot project for Shale Gas exploration in Damodar Basin.
    Besides, ONGC Energy Centre has launched research projects in several new alternative sources of energy including Thermo-chemical reactor for Hydrogen, Bio-conversion of coal/oil to methane gas, Uranium exploration, etc. Your company is also exploring feasibility for a Photo Voltaic Solar farm.
  7. Value-multiplier projects
    The value-multiplier projects which your Company is pursuing in the area of Petrochemicals, SEZ, Power etc., are progressing well and once commissioned, will signify integrated dimension to your Company's business pursuits.
Commitment to environment
Your Company is equally conscious and shares the global concern on climate change. You may be pleased to know that your company is the only PSU to have four of its CDM projects registered with the United Nations Framework Convention on Climate Change (UNFCCC). Two more validated projects are awaiting registration at UNFCCC. ONGC is also playing a pioneering role in the field of Greenhouse Gas (GHG) accounting which will help your Company to benchmark its operations leading to energy efficiency.

Corporate Governance
This year again your Company has received 'Nil' comments from CAG as well as from the Statutory Auditors; the third time in a row. This proves our conviction for the best accounting and disclosure practices. Recognizing various initiatives for good governance practices, Standing Conference on Public Enterprises (SCOPE) bestowed 'Gold Trophy' in November' 2008 (top honours) for the 'SCOPE Meritorious Award for Good Governance 2006-2007' to your Company.

Corporate Social Responsibility (CSR)
Your Company, a responsible Corporate Citizen, has also enhanced its commitment towards Corporate Social Responsibility (CSR). It has resolved to earmark 2% of the net profit (compared to 0.75% earlier) for the various CSR projects which will be looked after by a dedicated group at the corporate level.

Sports
Your Company won the Petroleum Minister's PSPB Trophy for overall best performance in 2008-09 for the sixth year in succession. The recently concluded ONGC Nehru Cup sponsored by your company is seen as the launching pad for Indian football to rise to the next level.
You will be pleased to know that ONGCian Pankaj Advani, a Padmashri awardee, won the World Professional Billiards Championship in September'2009. Further, athletes Ms. Chitra K Soman and Ms. Sinimole Paulose and eminent Cricketer Mr. Gautam Gambhir have been bestowed with Arjuna Awards.

ONGCians
You might have noticed - "Our most valuable asset - Our People" - is the title caption on the front page of your Company's Annual Report. These are the people, the ONGCians, who locate and create opportunities and manage to convert these opportunities into assets to create value. Their dedication, knowledge, skills and must-do attitude are the real strengths of your Company. On your behalf, I take the opportunity to convey sincere thanks to all of them.

Acknowledgements
Before I conclude, on behalf of the Board of Directors of your Company, I wish to convey deep gratitude to you, our valued shareholders, for your tremendous support and trust, which continues to give us confidence and strength to raise our bar, achieve greater heights, and constant value creation for you, as well as for the nation. I appreciate the unstinted support and valuable guidance from Ministry of Petroleum & Natural Gas, Government of India, without which continued excellence would not have been possible. I acknowledge the support of the various other Ministries, Authorities and Agencies of the Union Government, the State Governments and all other stakeholders. I also place on record our appreciation to all the authorities in various countries who provided us global opportunities and continue to do so.

We look forward to continued support and confidence from all of you. I promise we shall not let your trust fail.

Thank you,
Jai Bharat.