As you read this the world more specifically humanity is in themidst of the most severe humanitarian crisis in over a century. Since it first broke outin late 2019 COVID-19 pandemic today has drastically disrupted our life. It hasinvariably become the de-facto context in which all discussions of the present and mostnear-term planning are based. However we in the energy industry know that every suchcrisis also brings an opportunity for growth and a trigger for human ingenuity andcollaboration. Interestingly the situation has accelerated the adoption of digitaltechnologies across all facets of our operations and we at ONGC see that as a bigpositive'. We believe that soon the world will come out of this challenging situationstronger and wiser with sustainability and human equity as key elements of the new growthnarrative. At this hour of crisis your Company salutes the tireless dedication andincredible courage of all the frontline workers fighting this crisis the medicalcommunity sanitation workers essential service providers and law enforcement agencies.This highly uncertain stretch offers an opportunity for individuals and organizations thatexcel at crafting solutions. Over the years energy has been central to our pursuit ofdevising driving and deploying those solutions at scale. As one of the country'sleading energy entities and its foremost energy explorer ONGC has been at the forefrontof enabling and delivering solutions and growth to the industry. You our valuedshareholder and votary of our progress have always been a major stakeholder in thisjourney. We thank you for your unstinted support through the many phases of our evolution from solely focused on upstream oil and gas business to a diversified energyconglomerate.
The energy industry remains vital to the recovery of global economicactivity. However there is wide-ranging uncertainty on the shape of things to come withinthe industry as multiple forces are at play be itglobalconsensusonclimatechangeandsustainability energy efficiency improvements growingconsumer awareness volatility in international trade relations and technologicaldisruptions. The ongoing global pandemic has added further layers of complexity to thealready dynamic environment.
As a significant player in the country's energy arena ONGC isengaged in numerous developments that may potentially impact the sector. The focus is onbuilding the business along pathways that will align with its core expertise areas as wellas help ONGC build a portfolio that will be adaptive to the future energy ecosystem.Prices have always been a key determinant of the economic health of the sector.Considering the prevailing lower crude oil and gas prices it becomes imperative that wecontinue to grow while balancing the need to ensure all investments are value-accretiveand sustainable over the long-term. Energy Strategy 2040 our long-term strategicblueprint which we adopted last year clearly spells out this vision of looking at thefuture not merely from the standpoint of energy security but value-creation point of viewas well.
On behalf of the Board of Directors of your Company I now present toyou the Company's Annual Report for the financial year 2019-20 [FY'20].
ONGC registered another robust year of performance in FY'20notwithstanding the unpredictability in global energy markets and a turbulent finalquarter marked by the onset of COVID-19. Operational performance was comparable to that inFY'19 while financials were a reflection of the low oil and gas prices in globalmarkets.
It was another positive year in terms of reserve accretion withmore reserves being entered in the books than our annual hydrocarbon production. In allyour Company made 12 discoveries 7 onshore and 5 offshore. 2P Reserve accretionstood at 53.21 Million tonne oil equivalent (MMTOE) with a Reserve Replacement Ratio (RRR)of 1.19. We are now equally focused on timeline of monetization as we are on the count orvolume of the discoveries. We are aggressively scouting for un-appraised areas or layerswithin our mature Basins and focusing on near-field appraisal which will allow us toleverage nearby/ existing infrastructure for co-developing such finds.
Further as an NOC we are also expanding our exploratory footprint invirgin or under-explored areas and data gathered from such pursuits will boost thenation's hydrocarbon prospects. To sustain the path-breaking momentum we achieved inthe Vindhyans and Bengal Basins ONGC is determinedly pursuing acquisition of areas aroundthose areas. We were awarded 15 blocks in different OALP bidding rounds throughoutFY'20 7 in the latest OALP-IV round. You will be happy to know that ONGCmonetized 22 fresh discoveries during FY'20 out of which 4 were discovered in thefiscal year itself.
Production of oil and gas of your Company stand-alone was at 44.57MMTOE while the same including our share in Joint Venture projects stood at 48.25 MMTOE.Production of Value-added products stood at 3.55 MMT.
The trend of increasing onshore oil output in the past 4 years is a bigpositive vis--vis the mature fields that are driving the volumes. First gas from ourdeepwater gas project Cluster 2 of KG DWN 98/2 field started in March 2020. InFY'20 your Company produced over three-quarters of the country's oil and gasoutput. As a Maharatna National Oil Company your Company remains committed to augmentingproduction of oil and gas to boost the country's energy security. During FY'20three major projects (MHNRD Phase-IV HRP-III PRP-VI) with an investment of Rs 64874Million and envisaged oil and gas gain of 13.62 MMTOE were approved. As on 01.04.2020 17major projects were under implementation with envisaged gain of about 121 MMTOE. We alsorealize the need to maximize recovery from our existing legacy fields. We envisage acumulative gain of over 200 MMT of oil from the 31 approved Increased Oil Recovery(IOR)/Enhanced Oil Recovery (EOR) schemes. The Government's policy incentive in thisregard provides a timely fillip for moving ahead with more Enhanced Recovery projects.Under this policy ONGC has planned commercialization of 5 EOR schemes and implementationof 3 EOR pilots. Further it has initiated process for fast-track pilot design of theChemical EOR in 12 onshore reservoirs of 7 fields.
Our drilling performance remained impressive. We drilled 500 wellsmaking it the fourth consecutive year that 500 or more wells were drilled in a year.Strong operational performance consistently over the years justifies our commitment torobust capital outlays for the business. In FY'20 our capex stood at
Rs 295385 Million. Over the last 5 years our cumulative E&P spendis close to Rs 1500 Billion a period that witnessed significant cutbacks ininvestments by most players in the sector global as well as domestic due tothe uncertain price regime and a secular slowdown in economic activity. This reaffirms ourbelief in the long-term prospects of the domestic upstream space while delivering on ourmandate as the NOC to avert build-up of large-scale strain in the energy sector on accountof investment freeze. But the current slowdown is a matter of concern. While ONGC viewsany price of an oil barrel in the range of $40-$50 as acceptable' it stillposes significant cash flow risks. What further heightens this risk is the concurrentslump in domestic gas prices. Moreover in view of the extant threat of COVID-19 and aslow economic revival a sudden drop in prices remains a very real possibility in thenear-term. Though low prices augur well for country's trade balance on the back offorex savings it undermines the growth outlook for domestic upstream sector ascommerciality of their projects comes under risk. The need to buffer our balance sheetunder these circumstances is a key priority of the management. So we are rationalizingour expenses for the current fiscal i.e. FY'21 through various expenditure reductionmeasures. This ensures our core portfolio is not affected and capital is not a constraintfor key ongoing projects but commitments for projects higher on the cost curve and withlonger timelines are being either deferred or optimized. I would also like to highlightthe operational preparedness of ONGC at this point. While there is nofail-safe' readymade template for the exceptional situation triggered by thepandemic your Company's positive response in this testing period exemplifies itsnation-building' character. Even as the country went under lockdown beginninglast week of March ONGC maintained critical supplies of oil and gas for the countrynotwithstanding the severe logistical and supply constraints while minimizing the risksfaced by our' people (ONGCians as well as our contractual staff). Operationalrevenues for FY'20 stood at Rs 962136 Million while Profit-After-Tax (PAT) was Rs134445 Million. The Company realized US$58.61/bbl for domestic crude in FY'20compared to US$68.19/bbl in FY'19. While the decline in revenues is largely a factorof lower crude prices the significant drop in net profit was on account of exceptionalitem towards impairment loss of about Rs 49000 Million in the final quarter to factorinto estimated future crude oil and natural gas prices. It may be mentioned that theimpairment is a temporary adjustment in the book value to reflect future price outlook andwhich may get reversed in future if the prices recover.
We also made a dividend pay-out of Rs 62901 Million to all ourshareholders with a pay-out ratio of 56% (including dividend distribution tax). Ourhealthy dividend record over the years is a testament of our commitment to value-creationalong with business growth.
On international E&P frontier markets have weathered a rough yearon account of global trade tensions lower demand on account of general economic slowdownoversupplied gas markets and adverse fallout from the COVID-19 pandemic. However ourinternational arm and 100% subsidiary ONGC Videsh registered a good year in its overseasoperations. ONGC Videsh produced its highest-ever 14.98 MMTOE of oil and gas inFY'20. Today ONGC Videsh is invested in 37 projects across 17 countries. The futurelooks promising for ONGC Videsh in view of the significant developments during FY'20in some of its key investments. Notable among them are the decision to build the 6.2 MMTPAFar-East LNG project in Sakhalin-I in Russia project commencement of Azeri-Central Eastproject in Azerbaijan and the FID on the Rovuma Area-1 LNG project in Mozambique.Consolidated Turnover and PAT (attributable to owners) for ONGC Videsh during FY'20stood at Rs 155383 Million and Rs 4540 Million.
Beyond E&P performance of our business across the value-chainremained strong. HPCL the country's second largest oil marketer and a Maharatna NOCregistered an impressive refining performance in FY'20. During FY'20 HPCLrefineries achieved combined refining throughput of 17.18 Million Tonnes (MMT) withcapacity utilization of 109%. Both the Refineries of HPCL were up-graded to produce BS-VIcompliant transportation fuels. Lower Refinery throughput compared to FY'19 wasmainly due to planned shutdowns required for upgradation of the refineries for BS-VI fuel.HPCL achieved the highest-ever sales volume of 39.6 MMT. It further consolidated itsposition in the domestic retail space by setting up a record 1194 new retail outlets inthe year. Gross Revenue during the financial year was Rs 2874169 Million and PAT for theyear stood at Rs 26373 Million.
MRPL the other refinery of your Company achieved a throughput of14.14 MMT in FY'20. Less throughput was mainly due to unprecedented water scarcityduring first quarter and minor landslide after an intense monsoon during second quarter ofthe year. It was also impacted by COVID-19 in the last quarter. However MRPL alsocommenced production of BS-VI grade Motor Spirit and High-Speed Diesel. MRPL registered aturnover of Rs 607515 million and registered a Net Loss of Rs 27076 million.
In the petchem vertical ONGC Petro additions Ltd (OPaL) operated ataverage 88% capacity in FY'20. It aggregated more than 1.6 Million Tonnes of polymerand chemical sales. Its total income stood at Rs 102071 Million while incurred a Loss ofRs 20897 Million. Capacity utilisation at ONGC Mangalore Petrochemicals Limited (OMPL)for FY'20 stood at 80%. The petchem unit also added two products to its revenuestream - export of Paraffinic Raffinate and sale of Heavy Aromatics. However financialswere severely affected due to unprecedented fall in International prices of Para-Xyleneand Benzene. In the power segment ONGC Tripura Power Company (OTPC) recorded total incomeof Rs 12765 Million while netting a Net Profit of Rs 705 Million during FY'20. Thelargest Indian Clean Development Mechanism (CDM) project OTPC meets 35% of all powerrequirements of the North-eastern states of our country.
Your Company is transforming itself to not only just reduce theexposure of our Group to sectoral pricing risks but also position it well for theimpending global Energy Transition. Our strategic blueprint for the future EnergyStrategy 2040 - clearly spells out that intent in its vision statement. Oil and gas willcontinue to remain mainstreamed in our plans but there is substantial scope for growth inareas beyond E&P. We are targeting scaling up our Renewables capacity to 5 GW and alsoplan to explore CGD/ regas through units within our Group. Energy Strategy 2040 hasprioritized opportunities in core E&P business as well such as (i) select difficultplays (HP-HT Deep/Ultra-deepwater) (ii) in-house EOR solutions for productionmaximization (iii) plays with volume in host countries that share positive G2G relationsfor long-term security of supplies. Among the emerging opportunities we should focus moreon those with shorter business cycles and lower breakeven costs. To achieve the goals weare also considering strategic restructuring of the organization to leverage internalsynergies and to respond better to new opportunities. One such ambitious project withobjective of creating a "Future Ready Organization" is the"Integrated Shared Service Centre and Beyond" which will not only change the wayof working but the structure of organization too. The project envisages shared &integrated services across HR Finance & Accounts Materials Management and Infocomfunctions to begin with and will be subsequently extended to field services like drillingwell services logging workover etc. along with high performance computing inexploration.
Beyond operations ONGC has also stayed true to its guiding businessphilosophy of growth with equity and justice through its comprehensive CSR program. InFY'20 our CSR spend was Rs 6070 Million making it the fourth consecutive year thatour CSR expenditure has surpassed Rs 5000 Million. During the exceptional times ofCOVID-19 where people on the margins are rendered more vulnerable ONGC has stepped inwith massive efforts to support them. In addition to contributing Rs 3000 Million to thePM Cares Fund we executed CSR projects worth Rs 200 Million benefitting more than 2.6Million fellow countrymen through distribution of food/ masks/PPE kits/sanitizers andfunding of ventilators in hospitals. Employees of your Company also voluntarilycontributed about Rs 300 Million from their salaries over four months. It reflects theheart and spirit of your Company and reaffirms our enduring commitment to the NationFirst' motto. Your Company is committed to conduct the business in a legal ethicaland transparent manner and observes highest standards of corporate governance.Accordingly your Company has been continously rated "Excellent" grade for itscompliances with the DPE Guidelines on corporate governance. Here I would like toacknowledge the continuing support and guidance of the Government of India especially ouradministrative Ministry of Petroleum and Natural Gas on matters pertaining to thecountry's energy security as well as the sovereign development agenda. As a NationalEnergy Company we remain committed to developing the business and facilitating ourcountry's progress ensuring that the benefits of growth reach more and more peopleof our country. The Company appreciates your enduring support as it navigates its way tothe future energy landscape. A journey that is in its seventh decade now would not havebeen possible without your steadfast belief in our vision of Energy'. I thankyou for having chosen us and remaining as valued partners in the business throughout allthese years. My final words of appreciation go for the 30000 strong ONGCians thebedrock the heart and soul of the grand superstructure that we all see. They areour country's energy soldiers. Especially now at this difficult hour of crisis whenthe country contends with a pandemic many of them went beyond their call of duty in fieldsites offshore and onshore away from family battling many struggles to ensure ONGCcontinues to do what it does best produce energy that keeps the country moving. Itis the corporate values of courage equity and passion that inspire our march towards atomorrow rich in energy and possibilities. We are optimistic that very soon the worldwill be a better place; COVID-19 will be behind us and we will continue toward buildingour future with greater zeal and enthusiasm.
|Jai Hind! || |
| ||Sd/- |
| ||Shashi Shanker |
| ||Chairman and Managing Director |