ONGC, another most-valued PSU registers a record dip in cash reserve, expenditure on exploration hit

The state-owned Oil and Natural Gas Corporation, which accounts for 60% of the production of crude oil in the country has suffered a major dip in the cash and bank balance. It touched a record low of ₹540 crores in March 2019, according to a report in The Indian Express.

The major cause of this dip is the two deals in which ONGC bought stakes in the downstream Hindustan Petroleum Corporation (HPCL) and Gujarat State Petroleum Corporation (GSPC). Subsequently, the cash reserves dipped to ₹504 crores which were ₹1,013 crores in March 2018 and ₹9,511 crores in March 2017 and ₹9,957 in March 2016. Nevertheless, the government maintains that it has “sufficient lines of credit from banks and strong access to capital markets" to maintain its working capital requirements.

But a close look at the data of the past six years shows that the company has almost halved its expenditure on exploratory wells. It was ₹11,687 crore in the year ending on March 2014 to ₹6,016 crores in the year ending on March 2019.

This decline is reflected in the steady decline in domestic crude oil production. According to the data quoted by The Indian Express, there is a consistent decline in domestic crude oil production between FY12 (38.09 MMT) and FY18 (35.68 MMT).

The expenditure on developmental wells by ONGC was ₹8,518 crores in 2012-13 but went down to ₹9,362 crores in 2018.

Since ONGC has stated on record that production and exploration of oil are their main cash-generating activities, this decline in the expenditure on exploratory wells is being seen as a negative trend.

Ageing fields and lack of any major new discovery are considered two major factors behind dwindling domestic crude oil production. As a result, the country’s 80% requirements are being fulfilled by the imported crude oil. This trend goes against the government’s claim that the dependence on oil import will be reduced by 67%.