Chairman's speech to shareholders on 27th Annual General Meeting of ONGC
Dated : 09 October 2020 03:26:00 PM
On behalf of the Board of Directors of your Company, Oil and Natural Gas Corporation Limited, once again I welcome you all to the 27th Annual General Meeting.
I hope that you are doing well, and keeping safe and healthy. As the country is reeling under pandemic Covid-19, it has disrupted our collective sense of the ‘normal’, but I am sure that we will emerge out of this crisis stronger, more resilient and wiser.
Before I deliberate on various aspects of my speech, let me take this opportunity to pay our sincere gratitude to each and every one working at the frontline -combating the pandemic in order to make the world safer and more convenient for all of us – the medical community, sanitation workers, essential service providers and the law enforcement agencies.
It has been a trying time for your Company as well. Notwithstanding the significant logistical challenges in the wake of the lockdown, ONGCians, the employees of your Company, maintained the oil and gas production for the country- sacrificing their personal comfort, bearing the emotional pain of prolonged separation from their families and defying the fear of the contagious disease.
Management of your Company has ensured best medical and logistics facilities for its employees. However, in spite of that, we have had to endure sad and tragic loss of lives within our ranks. Let me pay my deepest tributes to the ‘energy soldiers’ we have lost . Each one of them exemplified the ONGC ethos of courage and commitment.
Let’s come to the performance of your Company. Our business recorded a stable year of performance in FY’20. Let me share some of the highlights from the year -
- During the year, we made 12 discoveries – 7 in onshore & 5 in offshore;
- Our 2P Reserve Accretion was 53.21 MMTOE with a Reserve Replacement Ratio of 1.19;
- We monetized 22 discoveries, of which 4 were discovered during the current year itself;
- ONGC’s Standalone Oil plus Oil Equivalent Gas (O+OEG) production was 44.57 MMTOE;
- First Gas production from deep-water project ‘KG-DWN-982’ commenced on March 05, 2020;
- Panna- Mukta field, which was handed over back to ONGC by the Govt. of India in December 2019- was seamlessly taken over without affecting the production;
- We drilled 500 wells – the fourth consecutive year to have drilled 500 wells or more in a year;
- Revenues stood at Rs. 96,214 Crore and Profit After Tax was Rs. 13,445 Crore;
- ONGC Videsh recorded its highest ever Oil & Oil Equivalent Gas production of 14.98 MMTOE;
- Both HPCL and MRPL refineries commenced production of BS-VI grade Motor Spirit and High Speed Diesel;
- Petrochemical units ONGC Petro additions Ltd (OPaL) and ONGC Mangalore Petrochemicals Limited (OMPL) are capable of running at full capacity. In fact, OPaL is running at 105% capacity;
- ONGC Tripura Power Company (OTPC) recorded a Net Profit of Rs. 71 Crore.
It is also my pleasure to submit that your Company received several international and national awards & accolades on the merits of its sustained operational excellence and sound business fundamentals. Some of them are:
- We ranked 11th in terms of financial parameters in the coveted Platts Top 250 Global Energy Company Rankings in 2020, and ranked Number One Integrated Oil & Gas Company in Asia Pacific Rim;
- We ranked 190th in Fortune Global 500 list;
- We also Ranked 269th worldwide in Forbes Global 2000;
- At domestic front, we received the Rashtriya Khel Protsahan Puruskar for ‘Encouragement to sports from the Hon’ble President of India;
- We received the FIPI (Federation of Indian Petroleum Industries) Oil & Gas Exploration Company of the Year 2019 Award;
- Your Company has once again been rated ‘Excellent’- as per DPE guidelines on Corporate Governance performance;
- Our institute IPSHEM, Goa has been awarded the ‘Energy and Environment Foundation Global Environment Award in ‘Platinum Category’ in 10th World Renewable Energy Technology Congress & Expo-2019;
- We also bagged S&P Platts Global Energy Award 2019 for Corporate Social Responsibility - Diversified Program.
Now, let’s come to the Economy and Industry Outlook. As you know, the Global GDP growth in 2019 was 2.9 percent - slowest since the global financial crisis of 2008-09. Trade disputes and Geopolitical stress were some of the key reasons for this deceleration. The spread of Coronavirus across the world came in the backdrop of such an already sluggish economy. The pandemic and the resultant lockdowns in several countries compounded the problem further, and adversely impacted the global economy.
Outlook for 2020 remains negative with IMF projecting a contraction of almost 5% in its latest June World Economic Outlook. But economic activity is expected to recover in 2021 with the much-anticipated rollout of the vaccine, and the world readjusting to a new way of doing trade and business.
Our domestic economy too is experiencing significant stress. Growth in FY’20 was 4.2%. It shrank significantly in Q1 of FY’21. However, results in subsequent quarters are expected to improve with resumption of economic activities and improving consumer confidence.
The pandemic has dealt a severe blow to the oil sector in particular. Oil demand collapsed by about a staggering 22 million barrel per day in the second quarter. Oil as well as gas prices tumbled – global benchmark Brent dipped to under $20 per barrel and US benchmark WTI traded in the negative at one point of time. However, the prices have slightly recovered since then and currently trading at around $40 per barrel.
Upstream activity in 2019 was strong despite lower oil and gas prices. Major project sanctions worth $100 billion targeting 20 billion barrel oil equivalent were made. But all that is set to change in current year with capital spend cuts-off anywhere between 20%-30% projected as companies recast their plans in the post-pandemic energy era. Oil demand is likely to be 10 million barrel per day less in 2020, which is expected to pick up again with the containment of COVID-19. However, oil prices will remain an important determinant for the sector’s growth and investment prospects. Any price on the right side of $45 per barrel would be a minimum requirement to encourage the industry to invest.
Use of Natural Gas continues to grow across the board. Global LNG trade in 2019 grew by 13%. While consumption and prices have been affected in 2020 due to the pandemic, its demand is poised to bounce back in the post-COVID energy world.
Let me now share with you, your Company’s operational performance highlights in FY’20.
In exploration front, we made 12 discoveries with a 2P reserve accretion of 53.21 MMTOE. Reserve replacement ratio stood at 1.19. Most importantly, we monetized 22 of our discoveries of which 4 were discovered in the same year. It underlines ONGC’s sharper focus on reducing the time between discovery and material output which directly benefits the company’s topline and country’s energy needs.
Your Company’s standalone Oil and gas production in FY’20 was 44.57 MMTOE. Offshore continues to be the mainstay of our domestic production, but it is worth mentioning that the output from our onshore fields marginally increased for the fourth consecutive year. First gas production from our deep-water gas project –KG DWN 982 started in March 2020. The total output of ONGC Group (including ONGC Videsh and ONGC’s share in PSC-JVs) stood at 63.23 MMTOE.
During the current fiscal, FY’21 – ONGC has effectively managed its operations despite the supply and logistical bottlenecks encountered during the nationwide lockdown. While crude oil output in Q1 FY’21 compared to that of Q1 FY’20 was almost same, the decline in gas output was on account of less off-take by customers in the wake of COVID-19.
We have maintained our strong Capex program. In FY’20, 11 major projects worth Rs. 21,882 Crore were completed, which included Daman Development Project in Western Offshore– a major source of incremental gas supplies for the next few years. We also approved three major projects (MHNRD Phase-IV, HRP-III and PRP-VI) with an investment of Rs. 6,487 Crore and envisaged oil and gas gain of 13.62 MMTOE. Projects expected to contribute over 121 MMTOE are also currently under implementation.
In addition, Govt’s new policy framework on production enhancement has provided us the incentive to move ahead with commercialization of 5 EOR schemes and implementation of 3 EOR pilots. We have also initiated process for fast-track pilot design of the Chemical EOR in 12 onshore reservoirs of 7 fields.
In financial performance front in FY’20, your Company posted Revenue of Rs. 96,214 Crore and earned a Net Profit of Rs. 13,445 Crore. Lower earnings compared to previous fiscal year are a reflection of the low oil prices in FY’20. In addition, our bottom line was further depressed due to exceptional item towards impairment loss of about Rs. 4,900 Crore in the final quarter to factor into estimated future crude oil & natural gas prices. The impairment is a temporary adjustment in the book value to reflect future price outlook and which may get reversed in future when prices recover.
While Q1 FY’21 was a particularly trying period for oil & gas companies globally, we still posted a profit. This speaks of our sound fundamentals and a robust business model. Going forward, in order to further strengthen resilience of our portfolio, we have aggressively planned on maximising our capital expenditure.
You will appreciate that we are among the most consistent dividend paying companies in the country. Total dividend distribution to shareholders was Rs. 6,290 Crore for FY’20 with an impressive pay-out ratio of 56% which includes dividend distribution tax.
Let’s come to the performance of our overseas operations. Despite turbulence in international energy markets, our overseas investment vehicle and 100% subsidiary, ONGC Videsh could achieve an impressive results in FY’20. It recorded highest ever oil and gas production of 14.98 MMTOE.
Having exited from 4 projects in FY’20, ONGC Videsh today has interests in 37 projects in 17 countries. We are confident of our international portfolio’s durability and growth. Positive developments in critical projects such as Sakhalin-I in Russia, Rovuma Area-1 LNG project in Mozambique reaffirm this view.
Turnover and PAT for ONGC Videsh during FY’20 stood at Rs. 15,538 Crore and Rs. 454 Crore respectively.
Our performance in other business areas of the energy value-chain was also quite impressive.
HPCL achieved combined refining throughput of 17.18 Million Tonnes with capacity utilization of 109%. Both the Refineries of HPCL were up-graded to produce BS-VI compliant transportation fuels. It achieved the highest-ever sales volume of 39.6 MMT. It further consolidated its position in the domestic retail space by setting up a record 1,194 new retail outlets in the year. During FY’20, HPCL registered consolidated Revenue of Rs. 2 Lakh 87,417 Crore and a Net profit of Rs. 2,637 Crore.
MRPL achieved a throughput of 14.14 MMT in FY’20. Its throughput was affected mainly due to unprecedented water scarcity during first quarter and a minor landslide in the plant area after an intense monsoon during second quarter of the year. MRPL also commenced production of BS-VI grade Motor Spirit and High-Speed Diesel. It recorded a turnover of Rs. 60,752 Crore while incurring a Loss of Rs. 2,708 Crore, primarily due to inventory loss on account of sharp fall in oil prices.
In petrochemicals, ONGC Petro Additions Ltd (OPaL) realized more than 1.6 Million Tonnes of polymer and chemical sales.
ONGC Mangalore Petrochemicals Limited in FY’20 innovatively introduced two products to its revenue stream – Paraffinic Raffinate which was exported and Heavy Aromatics which was sold in domestic market.
Financials of petrochemicals units were severely impacted due to unprecedented fall in international prices of the products. Going forward, we are confident that with the resumption of consumption and recovery of global prices, OPaL and OMPL are going to make good businesses.
Coming to power business, ONGC Tripura Power Company (OTPC) is doing very well, meeting 35% of all power requirements of the North-eastern states of our country. It registered a total income of Rs. 1,277 Crore and a profit of Rs. 71 Crore during FY’20.
Let me now give a brief preview of our long-term energy perspectives. Our core interest in E&P business does not preclude our ambitions as an integrated energy entity. Our long-term strategic blueprint - Energy Strategy 2040 – which we adopted in 2019 is a step in that direction.
Energy Strategy 2040 is our strategic roadmap into the evolving future energy landscape. The massive business disruption caused by COVID-19 has further intensified the importance of ‘Change’ in existing systems to productively deal with tomorrow’s challenges and opportunities. Oil and gas will remain central to our future plans. We are targeting to augment our Group’s oil & gas production to 110 MMTOE by 2040. At the same time, the Company is consciously pivoting towards new energy opportunities while aiming to further consolidate the existing non-E&P sectors. We aim to triple our refining capacity from 35 MMTPA to 100 MMTPA as well as grow our petchem to 9.5 MMT from current 3.8 MMT. We are targeting to scale up our Renewables capacity to 10 GW.
A strategic restructuring within the larger ONGC Group by 2025 is also on the anvil. COVID-19 crisis has clearly highlighted the need for centralisation of services and decision making wherever possible for a more agile and future-ready organization. One such ambitious project is creating an ‘Integrated Shared Service Centre” which will facilitate standard services, seamless data flow, improved processes, centralised information and pooling of resources to deliver effective and efficient services to end users with optimised resources.
Coming to Corporate Social Responsibility of your Company. The CSR for us in ONGC is more than a statutory mandate. We firmly believe that our relevance is equally important for the less privileged stakeholders from the society and community.
Last year, in FY’20, our CSR spend was Rs. 607 Crore, making it the fourth consecutive year that our CSR expenditure has surpassed Rs. 500 Crore. A majority of CSR expenditure is focused on Education, Nutrition & Healthcare and Swachhta initiatives.
COVID-19 has rendered the marginalized and underprivileged people even more vulnerable. ONGC has stepped in with massive efforts to support them. In addition to contributing Rs. 300 Crore to the PM Cares Fund, we spent more than Rs. 25.5 Crore towards distribution of food, masks, PPE kits, sanitizers and providing ventilators to hospitals etc. benefitting more than 4.4 million people. Employees of your Company also voluntarily contributed about Rs. 30 Crore from their salaries over four months. It reflects the heart and spirit of your Company as well as its employees, and reaffirms our enduring commitment to the ‘Nation First’ motto.
I, on behalf of the Board of Your Company and all other stakeholders, would like to acknowledge the critical role of the Government, especially our administrative Ministry - Ministry of Petroleum & Natural Gas, for providing necessary impetus in advancing the interests and supporting the growth of your Company in domestic as well as international arena.
We also acknowledge the cooperation extended by various other Ministries, Departments, statutory agencies of the Central Government as well as the State Governments of the states where we are operating; auditors, various supporting authorities within the country as well as overseas where we have business interests.
I also place on record our appreciation for our joint venture partners and our vendors for their continued cooperation and collaboration.
Before I conclude, let me say that notwithstanding the uncertainty of the external environment, we are confident that our business will continue to surpass benchmarks and achieve new milestones while making headways in newer opportunities. It has been a journey worth being a part of and nothing says that as aloud as your enduring faith in our vision of growth. We value this relationship deeply and believe it will continue to be mutually rewarding for years to come.
Here, I also place on record my heartfelt appreciation for the all ONGC employees who took on a great responsibility with courage and commitment to ensure energy supplies for the country even in the wake of COVID-19. They are the heart and soul of this organization, and it is in their display of passion and grit through their work that allows me to be confident of a brighter future for ONGC.
I would like to conclude by saying that belief and persistence are vital currencies at any point in life – more so now at this difficult period. So, keep believing in ONGC and ONGC will persist with doing what it does best – providing you with the energy to make a difference in your life.