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Oil and Natural Gas Corporation Ltd
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Very good evening, ladies and gentlemen. I'm Suardeep, your coordinator for this session. Thank you for standing by, and welcome to the First Quarter Financial Year 2019 Earnings Conference Call for ONGC Limited. [Operator Instructions] I would like to now hand over the proceedings to Mr. Subhash Kumar, Director of Finance from ONGC Limited. Thank you, and over to you, sir.
Good evening, ladies and gentlemen. I'm Subhash Kumar, Director of Finance, ONGC. And on behalf of ONGC, I welcome you all in this ONGC earning call for quarter 1 FY '19. Thank you all for joining us on the call. I'm joined here by my senior colleagues, Mr. A.K. Bansal, ED, Chief Corporate Finance; Mr. Pankaj Kumar, GM, Chief Corporate Planning; representative from ONGC Videsh, [ Mr. Chaturvedi and Mr. Sarkar ] from Strategy and Planning Group; Mr. Prakash Joshi from Investor Relations; and our Corporate Accounts team, Mr. Saklecha, Mr. [ Briget ] [indiscernible] and others. So the financial results for the quarter ended 30th June 2018 have been taken on record by ONGC's board today, that is 2nd of August 2018. The financial results have been released through a press note and sent to the stock exchanges. This has also been sent to the analysts who are there on our mailing list. Let me give a synopsis of these results. The company has earned profit after tax of INR 6,144 crores during the first quarter of FY '19 as against INR 3,885 crores during the first quarter of FY '18 and increase of INR 2,259 crores, which translates to increase of around 58.1%. The increase in net profit during quarter 1 '19 versus Q1 '18 is on account of increase in sales revenue by INR 8,232 crore. The sales revenue in Q1 has increased on account of increased sales revenue from crude oil by INR 6,728 crores, increased sales revenue from natural gas by INR 849 crores and increased sales revenue from the value-added products by INR 821 crore. The billing net of VAT and CST for crude during the first quarter of the current fiscal was at rupees -- $71.48 per barrel as against USD 48.42 barrel in the same period during the last year. This translates to an increase of 47.6%. The exchange rate of rupee versus dollar stood at INR 67.04 to $1 versus INR 64.46 to $1 in the first quarter of FY '18. Thus, realization for crude in rupee terms stood at INR 4,792 per barrel in Q1 FY '19 versus INR 3,121 per barrel in Q1 FY '18. That's an increase of 53.5%. The operating expenditure has increased by INR 163 crores, that is 3.5%, from INR 4,683 crore in Q1 '18 to INR 4,846 crore in Q1 '19. The increase in Q1 '19 is mainly on account of increase in stock expenditures by INR 40 crore due to increase in [indiscernible] by 3.5% and annual [ increments ] consumption in material has gone up by INR 188 crores due to increase in C2 sales at Dahej plant. CSR expenditure has gone up by INR 27 crores, and [ uneligible ] rig cost by INR 37 crores, which is compensated by decrease in work-over expenses of INR 126 crores due to increase -- decrease in work-over rig days by 120 days -- 122 days at Western Offshore assets and decrease in average per day rig cost by around 40% in work-over activity at Western Offshore and repair and maintenance cost, that is INR 50 crores. DD&I cost for Q1 F '19 stood at INR 3,887 crore as against INR 3,463 crores in QY FY -- Q1 FY '18, an increase of INR 424 crores, which is 12.2%. The increase in Q1 FY '18 is attributable to increase in depletion by INR 407 crore, increase in depreciation by INR 37 crore and decrease in impairment by INR 20 crores. The increase in depletion is mainly at South Bassein field by INR 168 crores, mainly due to addition in oil and gas assets amounting to INR 2,734 crores since corresponding quarter at Vasai East INR 95 crore due to deduction in reserves at KG Vashishta field by INR 95 crores and C-series field by INR 58 crores due to increase in production; and by INR 103 crores at HP [ STSL ], which was acquired in Q2 FY '18. This increase has been partially offset by reduction in Heera by INR 76 crores and D1 field by INR 57 crores due to increase in reserves. There's an increase of INR 82 crores that is 7.8%. In exploration cost written off in Q1 FY '18 from INR 1,057 crore in Q1 FY '18 to INR 1,139 crore in Q1 FY '19. The increase is mainly on account of higher exploratory billing expenditures charged off by INR 113 crores in Q1 '19, which is partially offset by decrease in survey cost by INR 31 crores.During Q1 FY '19, the statutory leverage stood at INR 6,733 crore as compared to INR 4,490 crore in Q4 FY '18. That's an increase of INR 2,243 crore. Actually, this should be read as Q1 FY '18, which is around 50% increase and is mainly attributable to increase in average selling price of crude oil from INR 23,113 per MT in Q1 '18 to INR 35,535 per metric ton and increase of natural gas from INR 6,772 per 1,000 cubic meters in QY -- Q1 '18 to INR 8,314 per 1,000 cubic meter in Q1 FY '19. Well, thanks. With this, I finish my briefing on the results for Q1 of financial year 2018-19. We will be very happy to take questions from you. We will suggest you to restrict your queries on financial results only. I thank all the people on the call for having taken time off and being here. Thank you very much for interest and time. Thank you very much.
[Operator Instructions] We have the first question from Mr. Pinakin Parekh from JPMorgan.
Yes, just a few quick questions, sir. How should we look -- I mean, other income, obviously, the dividend income was not there in this quarter, but then -- even then, it was a sharp decline. So sir, how should we look at the other income number going forward? And also is there sharply higher tax rate that we saw in this quarter?
Okay. So taking the second one first. So if you look at the tax, actually, whatever loans we have taken for the purpose of acquisitions, those are not eligible for the purpose of tax deduction. So consequently, the effective tax has gone up, as a substantial part of the financing cost this year is on account of the acquisition cost -- the loans taken for acquisition of HPCL. And I think regarding other income -- moreover, during this -- we have invested our surplus fund, which were earning interest in the previous year quarter, for acquisition of this subsidiary. Hello? Is it clear?
Yes, sir. So just trying to understand. Since the interest -- since the loans are -- do not have a tax shield, I mean, is this a steady structure going forward? Because I mean, the point -- I mean, there's no real tax benefits coming from such a large loan amount. So how should we look at the financing structure going forward, sir?
So one is that with the passage of time, if you look at -- I'm sure you will be getting it from borrowings. Borrowings would've come down significantly from the level they were seen in -- as on 31st of March. On the 31st of March, we were close to INR 25,000; and today, this is INR 21,000. So INR 21,000 also. So this impact is going down steadily. So it is at a much more reduced level now. That is one. And -- so that is largely the thing. Secondly, also, we have also taken working capital loan. And as you would have seen, we have [ gone in for ] CPs also. So consequently, for the loans taken for the purpose of working capital needs, those are eligible for tax deductions. So going forward, you will see steady decrease on quarter-to-quarter because this loan outstanding will keep on coming down.
Sure. And just one last question. The other expenditure number has declined on a quarter-on-quarter basis like 16%, which you had mentioned in the previous call. But on a year-on-year basis, it's 25% higher. So just going forward, how should we look at this? Will it remain elevated on a year-on-year basis but as a large member? Or can it keep on moderating things from here?
Hey. As far as the -- you must have noticed the increases of the order of some INR 900 crores, okay? This is because of the exchange variation during the quarter as compared with the previous year quarter. So the figure is INR 898 crores plus.
We have the next participant from Mr. Amit Rustagi from UBS Securities.
Yes, sir. Could you explain us the slight decline in the crude oil production or the [indiscernible] performance for crude oil ONGC that has declined to 4.76 from 4.995. So what could be the reasons for a decline in crude oil sales for the current quarter?
The crude oil, as far as production is concerned, ONGC crude oil production is marginally down. There was a [indiscernible] issues in the [ small field ] And as so you see, [ field ] crude concerns sometimes [indiscernible] demands how refineries [indiscernible] because the crude -- it so happens sometimes as the refineries [indiscernible] the inventory buildup a little bit. So quarter-on-quarter, it becomes difficult to explain what it is you see. But if you see that on a yearly basis, it would definitely be more. We are targeting more production this year with respect to the last year in oil and other areas.
But in gas, you must have noticed the increase?
Yes, yes. We have noticed the increase in gas, but crude oil actually surprise was that it had declined nearly 5% the production on YoY basis.
Yes, it has come down by 4.37. But I think on an annual basis, it will be marginally higher than last year.
Okay. So our full year target remains further growth?
Yes, yes.
Okay. And sir, although you have given a very long note, note #4, on Panna-Mukta, Tapti. And so if anything has to happen with respect to this, then can we have an estimation on the liability for this? And the second thing, which you have given one more note, on the service tax or GST obligation on the royalty side. So although we are [ somewhere ] dividing that amount in contest, but probably it's not going through the P&L.
Yes. As far as Note 4 is concerned relating to this Panna-Mukta, the issue is before the London Court -- London High Court. The decision is yet to be taken on this issue by the court. Once the final award is given, only then it can be quantified. It's premature to consider anything at this stage. That's why we had taken it as continuing liability.
Okay. And sir, what about GST and service tax on royalty?
Yes. As far as the GST is concerned, still royalty payment are the sort of compensation to the government, okay? And we have taken the legal opinion. And based on the legal opinion obtained by the company, service tax and royalty is -- on royalty is not applicable because there is no issue of rendition of service in this case. There is the nature of tax on tax. So consequently, we still maintain the same opinion. But however, as a matter of abundant caution, we have [indiscernible]...
But we have been the first thing under protest to [ to avoid ] any interest of penalty at a later stage.
Okay. But sir, there is any likelihood of contesting the higher court? Because contest has given...
Yes, certainly. Certainly, we had taken up this, and the civil [indiscernible] decided there had -- I think it's before the larger branch.
Larger branch of High Court or...
No, I think Supreme Court.
Okay. So we have already reached to the Supreme Court in this matter?
No, no. Not we.
No, no, not we.
Not we. In another similar case, the [indiscernible] is there.
We have the next question from Mr. Avadhoot from CIMB.
Yes. Firstly, sir, in terms of the disclosed realization per barrel of crude, you seem to have restated the earlier figure. So are you -- can you re-walk us to how you report this number? And what's the changes really that you have done?
So I think it's just a restatement of the way the industry is calculating it. Even ministries are reporting it to net of WACC and CST. Earlier, we were reporting gross, so there was some disconnect. So now by coming to the same norm which industry and ministry are reporting, we have started reporting it to net of WACC and CST.
I will come back to these 2 questions asked earlier, which is on the listing cost, okay? Basically, even if I look at -- you talked about rupee depreciation. But even I said, I think probably even in dollar terms, it has gone up by way over sort of $1 per barrel on a YoY basis, okay? 2, 3 questions. One is, basically, despite the fact that your production generally is stable across quarters, historically, your listing cost in terms of how you report it has -- we have seen a lot of seasonality to it in terms of suddenly -- and for going up in the fourth quarter despite really it's not that kind of [ season ] in the volume. So [indiscernible] think this kind of increase on a YoY basis for the first quarter. Should we extrapolate that kind of increase for the [indiscernible]?
This is the cost you are talking?
Basically, I'm talking to the other expenses line. The other expenses line -- you have a look at INR 17,000 crores in FY '18, okay? And that was the same number in FY '17. And I have a related question to that, which is that I presume, and correct me if I'm wrong, that despite the rally in the oil price, the oil services market continues to be soft, okay? And I'm just trying simply to understand her how costs are going up despite the softness supposedly in the oil services market.
No. As far as the other expenditures are concerned, we just now replied that 1 major element is the exchange loss, which happened during the quarter only because of depreciation of rupee, okay? This same -- in the case of sales revenue also, there is a favorable impact. That's why our sales revenue is high.
Can you bring out the amount?
It is actually INR 897 crores is on account of exchange loss, which is included in this figure. So since total figure is INR 900 crores. Whole figure is [indiscernible]...
Yes, yes. So total figure is this.
So what about the exchange loss? There is no increase.
Yes, yes. So that is the one question.
You mean by exchange loss -- you mean the -- you're basically taking the listing cost in dollar terms and saying multiply it by dollar, direct loss. Is that fully right?
No, no, no. We have certain liabilities, okay? Here they have quarter-end liabilities. Those are to be translated in terms of foreign exchange loss, which is to be charged to profit and loss account as an operating cost. Am I clear?
No, no. I am confused, is it a one-off?
This is a one-off because for the sudden depreciation of rupee. Otherwise, normally this figure is to the tune of some INR 50 crores, INR 60 crores, not more than that.
Okay. And now it is for how much, sir?
It is INR 897 crores.
It has -- this figure per se has nothing to do with operations. Its classification is here, but you can always take out safely this INR 897 crores, which practically is the entire increase. So this is rising on account of the weakness of Indian rupee vis-à-vis U.S. dollar.
What I'm trying to understand is, in this particular quarter the rupee-dollar rate was INR 67.04.
Vis-à-vis?
No, like absolute [indiscernible] exchange rate. Let's say next quarter the exchange rate continues at INR 67.04.
So then it will be 0. Then it will be 0.
0. It may be the other round -- other way around.
If it comes down to INR 66.04, then to the extent of the impact of INR 1, it will be again.
I'm sorry, it's still a little more -- what is the ForEx element? What kind -- what is this loss exactly? I'm still struggling to understand.
See, last year, till last year, it was an exchange gain. So we -- this was not a part of the operating cost, okay? Now this year, since it's a loss, it has been taken to expenditure. Otherwise, in the last year, it was taken to income.
Income. It is the reimplication arising out of restatement of liabilities as on the balance sheet date because of the change in exchange rate. So directly, it does not have anything to do with operations except that for the purpose of categorization since it is a loss it gets recorded on the side of expenses, and it is getting categorized in -- as part of operating expenses. So for the purpose of projections and assuming that rupee-dollar rate stays stable, this part around INR 897 crores can be kept -- taken out.
We will go to the next question, we have Ms. Sabri Hazarika from Emkay Global.
I just wanted to have a view on the various upcoming projects like up to 98/2 and the time lines for the same? And contribution to production by each projects?
Yes, there are lot of projects in pipeline right now. [indiscernible]. With respect to 98/2, I would say to give you the [comfort ] these have already been deployed in the field, and the bills are under [indiscernible]
Sir, we cannot hear you properly. Can you be a bit louder?
Yes, I'm sorry for that. What I was telling that the projects are there in East Coast as well as in West Coast. And if I tell you, I mean, to give comfort on the 98/2, rigs are already deployed. They're in the field, and fields are working currently, and 6 wells are under drilling in different phases. Then as far as with the West Coast then East Cost itself, one of the projects which was going on S1 in Vashista that has been completed. The production has increased over there, and we hope to ramp up further in this quarter still. In West Coast, if you see -- one of the major of projects of gas is Daman Development Project, where all the facilities have been completed. And 4 of the rigs are currently in operation there. The wells are under drilling, going fast really. And by the end of the quarter, we expect to increase gas production substantially over there also. We have a project taken up the [indiscernible] development, which was [indiscernible] to JV not to be taken up now, return to ONGC's development actually. And the greenfield part of that project will start contributing in -- somewhere in '19 end. And the brownfield part has -- we're just trying to commence production from brownfield part of that project. Some production will start contributing [indiscernible]. There was a project -- cluster development of [ D1 ] fields. We have already started the [indiscernible] productions from that particular rig and [indiscernible] by the end of the year. So this way, the projects are contributing. Additional production will be realized, and that's why the targets for this year have been increased. We expect to increase oil as well as gas.
Okay. And secondly, about the debt portion, you said that your debt reduced from INR 55,000 crore to around INR 21,000 crore. That's right?
INR 35,000 crore. Not INR 55,000 crore. That's a very scary figure. Around INR 35,000 crore.
Okay, sorry. Yes. So INR 35,000 crore to INR 21,000 crore? So currently...
No, no. INR 25,000 crore to INR 21,000 crore also.
Okay. INR 25,000 crore to INR 21,000 crore. Okay. And so currently, do you have any pressure of monetizing any of the investments that you have, something like an IOC or [ field ] merger or something of that, sir?
No. I think -- see, if you look at the stand-alone debt-equity ratio of ONGC, it is around 0.13. It was 0.13 on 31/3, and it is reduced, number one. Number two, in terms of the way we are reducing our debt levels, I think if this country trend continues for a couple of months we will be in a much better position. So I -- number one, per se, there is no pressure, right? And secondly, from that perspective, there is no issue of pressure. This is -- around 10% debt-to-equity ratio is actually on the lower side. So we are not concerned that -- no decision on divestment, if at all, will be taken because of some pressure of this nature.
Okay. And lastly, sir, anything on subsidy? Anything on subsidy burden?
So now you have lived with 1 quarter. Proof of pudding lies in [ '18 ]. And I think there is -- we are continue -- if the oil prices stay in the range, as I'm very clear, that there will be no subsidy burden.
In current range? Okay.
Yes.
We have the next question from Mr. Probal Sen from IDFC Securities.
Probal here. I have 2 questions. One, if I look at the production for this quarter, you mentioned that you still expect to actually grow the oil production as well as gas. Can we actually have a specific number? What is the target for oil and gas, if you can refresh our memory, sir? That's number one. And secondly, if I calculate the effective royalty rate for this quarter, that royalty rate typically has been in the range of between 12.8% to 13% on an average, including offshore, onshore, JV and all. That number seems to have gone up quite sharply this quarter. Any reason for that? Am I reading that correctly?
I mean, I'm not sure how you are looking at. If you look at royalty, actually, it has gone up by exactly 50%. And oil prices have also gone up by 53%, if you really look at those numbers, 48% in terms of dollar denominated and combined effect with rupee depreciation is 53%. So -- and INR 4,400 crore to INR 6,700 crore, if I remember the figures correctly, it is around 50% increase. So that's perfectly in line with the prices, right? A bit of price -- only the quantity.
Okay. Fair enough, sir. Fair enough. And the second part was the specific guidance on the production.
I think in terms of production we are still -- oil production, 22.75% is our target for the year on a stand-alone basis. And at JV level -- including JV, it is 25.9%. That is what we anticipate. And in terms of gas, stand-alone 24.4% and at -- including JV, 25.51%.
25.51%. Okay. And sir, can we actually get the consolidated debt as on date?
Actually, other entities have not prepared their accounts as of today. There is no requirement to have those accounts. But at least to this extent, there would've been -- to the extent there is a reduction in stand-alone debt, there would be a reduction there also.
So roughly, sir, as of fourth quarter, whatever is the consolidated, we should reduce about INR 4,000 crores from that, is that a fair way to look at it?
Maybe a bit more because they would have also accrued internal resources during this period, but you can -- this number is a safe number for projection.
We have the next question from Mr. Nitin Tiwari from Antique Stockbroking.
My [indiscernible].
And coming back to the previous question, actually, just to give you a position on the debt on date also. Actually, it has come down significantly post that to INR 16,900 crores also. So it is INR sub-17,000 crores level as on date. So within 1 month, it has come down by another INR 4,000 crores or so. Okay. You can go ahead with the next question.
There is a related question to the previous question already asked. So the new project -- the project that you just spoke about, you did mention what is going on in the projects. But can we have a sense around some time line and a broad production, incremental production which is going to come from each of them? So if you can help us with that?
So incremental production actually, let's say, Daman, my colleague talked about, it's expected around 2.2 to 2.5 MMSCMD. S1 Vashishta incremental production is likely to be 3.6 to 3.7 MMSCMD. [ WS 16 ] is likely to contribute around 0.7, 0.8. B-127 is around 0.3.
Moving to the next question, Mr. Amit Shah from BNP Paribas.
I just -- I'm sorry, I think I missed the production guidance for crude and gas. If you could just repeat that, please?
Okay. So oil stand-alone, 32.75; and with JV, 25.93; gas stand-alone, 24.41; and with JV is 25.51.
Okay. And the debt number that you gave is stand-alone number, right?
Yes, yes.
INR 16,900 crores?
Yes, that is roughly the number. It could be here and there by INR 50 crores or INR 100 crores, but it is less than INR 17,000 crores.
Okay. And the -- on OVL, can you tell us what was the Q-on-Q production update for both crude and oil?
Just a minute. My colleagues from OVL will...
Yes, production for Q1 '18, '19, total was 3.605. And then to oil and gas. Oil is 2.426 and gas 1.179.
No. I meant on a Q-on-Q basis, if you can just tell us the growth numbers or...?
Last year, it was -- total was 3.687, total MMT.
For Q4?
Yes. That was Q1 actually.
I can't hear you, I'm sorry.
That was Q1 last year. Q1-to-Q1.
Yes. What was a number? 3.687?
Yes.
And this time is how much?
3.605 is this Q then.
And Q4 is?
I would be sharing this number with you shortly.
We have the next question from Mr. Miten Lathia from HDFC Mutual Fund.
You mentioned, I think, almost close to INR 900 crores foreign-exchange loss in this quarter. If I sort of want to look at variation in exchange rate from 31st March to end of June and apply that to your outstanding, you should have INR 18,000 crores of outstanding foreign exchange liability at any point in time. Is that a correct number? I mean, is that the kind of foreign exchange liability outstanding that you run at any point in time?
The exchange variation arises on the foreign level days also by way of trade payable, other [indiscernible] payable, which had to be paid at the requisite year -- period-end liabilities. Those are also to be retranslated at the exchange rate, which is prevailing. So that has also [indiscernible].
All the liabilities that have to be paid or settled in foreign currency terms, so all that put together at sort of in a -- in the normal course at any point in time, what you would have outstanding would be of that order? Is that -- that seems to be a very large number. Is that a correct number, sir?
Foreign liabilities -- so I think we can -- we'll come back with a specific number. But as very rightly said by Mr. Bansal, actually, it is a combination of 2. One is on foreign currency-denominated loans and another is the other transaction. So we can have the -- we can let you know the break-up during this call or maybe a little later. But the average number is not that large.
We have the next question from Mr. Vishnu from Spark Capital.
The view of the gross realization including [indiscernible]?
Now that we changed the method we -- so I think, see, you can take a clue from -- our FY '18 was 55.19% in there, and actual was 57.33%. So which is INR 2 -- $2 -- INR 2 -- $2 and...
Okay. That's -- normally it helps us to understand the difference between your [indiscernible] spread is to blend. That's why we are asking if that number also is continued to be given is likely to be helpful in the future as well?
So actually this is 71.48%, which is the net, and gross is 74.23%.
74.23%. Okay. And you mentioned this interest cost on the HPCL-related debt is not tax deductible. But when you get a dividend, can you adjust it against the dividend distribution tax? Is that a fair assessment or even that is not possible?
No, that is possible. It's a subsidiary, so it qualifies.
Okay. So if HPCL gives you a dividend, at that time this interest cost completely on that you can adjust the tax on DDT?
No, no, no. They're not like that.
So whatever dividend we declare, let's say based on facts our DDT liability is INR 100, right? And subject to compliance with certain conditions, not always. If HPCL has declared and actually paid the dividend prior to our -- when we pay the taxes, suppose they have paid INR 20 of DDT, our portion relating to dividend given to us. So instead of discharging lability of INR 100, we would credit -- we would get credit for the liability to the extent of INR 20 which has been paid by HPCL on the dividend which has accrued to us. In fact, actually it is not accrued. It has to be actually [ received ].
So under no circumstances we can claim the tax component for the interest on the loan that we've paid?
That's the legal position as on date.
Okay. Sir, do you have any targeted repayment that you have in mind for this debt because it pretty seems to be an aggressive payment? So by end of the year, do you have any rough target to reach or you'll pay at least INR 3,000 crores, INR 4,000 crores every quarter?
We wish and hope. It's a function of actually a couple of things. [ See ], one is that normally the pickup in capital outlay for the company is also little slower in the first quarter, which actually generates more internal resources in the first quarter. As the year goes along, the pattern of spending also goes up. So little bit -- except for that adjustment to some extent, probably the trend will continue if the price stays at this level.
Okay. How much CapEx you spent for the first quarter and the full year and how much will be happening?
INR 6,400 crore.
INR 6,400 crore is that where we spent during 3 month of this fiscal.
And full year would be?
The full year will be close to INR 32,000, INR 32,077 crore. 3-2-0-7-7 to be specific is the budget number.
Okay. And similar number next year also?
Next year, it is not defined fully. Probably it will be a tad lower, but range would be the same.
Okay. Sir, on this PMT and the service tax that you have given in the notes. Can you indicate a time line by which you will know that this lability will get finalized? And do you see at least happening in next 6 months or 1 year?
So for example, PMT, we have given indication that there are certain things which have been referred by High Court to the arbitration tribunal. They have given a time line. And on an overall -- so there are time lines as far as PMT issue is concerned as of today. But these are legal matters, actually. You don't know whether this is the only stage or this the last stage or this is one of the stages. So from that perspective, very difficult to say. And for service tax also, there is no exact visibility as to when it will be sorted out. But we believe that it should be sorted out within this fiscal.
So PMT, how much contingent liability have you considered in the books?
This is INR 1.5 billion, and this is disclosed in the note also, some INR 10,000 crores.
That pre-annual preroyalty sharing that got changed some time ago, how much benefit will you get out of?
You would have done quicker calculations than us, but I believe, actually, it should be of the order of around INR 2,000 crores, as was our initial assessments. But all assessments are subject to certain inputs and assumptions taken. So the current at $60, we would expect on a going-forward basis this would translate to a net effect of around close to INR 2,000 crores.
At $60, INR 2,000 crores? Okay.
Roughly, yes, not on a single year. It's over the life of those contracts on going forward.
And on annual basis, what do you think will be the next [indiscernible]?
The net figure we don't have immediately...
So it will depend on the volume of production.
I mean at the current state, any rough number, say, to 100, 60, 200 or?
I don't dare to guess. I don't have calculations right now. But me, I have the overall number in my mind. It's...
I'll collect it later. And just one thing on the [indiscernible] part. I wanted to understand any numbers you told that's not finalized, but circle in production, is it cannot go because now that OPEC has -- the OPEC and Russia are likely to produce more? And [ Chakaland ] we understand wanted to increase production from 200 to 250.
What's the -- just a minute. What's the current production rate of [ Chakaland ]? I don't think [ Chakaland ] was subject to this?
[indiscernible].
Yes, just a minute. Just a minute. And any plans to increase to -- no, I think this number of 250 we do not know, but it's producing around 215,000 to 220,000 as at present.
215,000 to 220,000.
Yes. 215,000 to 220,000 a day. That is the range in which it is producing today.
Got the point. And just finally, just some commentary on the restructuring of the group. Any thoughts? Any time lines?
So part of it, you must be seeing from the press. We have approval on OMPL piece of it. We have taken some decisions on [ Povanance ] part. And we'll be working -- where we are working along with the government to see that both government and ONGC exit together for better value realization. As far as the rest of entities are concerned, this study is going on internally. And we are thinking, and we are identifying the operational synergies first, which are getting operationalized through teams. And structural adjustments will be happening in due course of time.
Okay. By FY '19 end we -- can we see some concrete plan?
So I anticipate that PHL would be done. ONPL would be done, or ONPL there will be -- we would be near about completion. PMHBL also probably we may be near the completion. Rest of it will probably be on an ongoing working.
We have the next question from Mr. Amit Rustagi from UBS.
Just, sir, one question relating to the structuring. As we know that ONGC group now we are presenting upstream, midstream refining, so what are the total value of the synergy in benefits which we can expect? Maybe, yes, time line, could be 1.5 years, 2 years from here. But what do you think what is the potential of synergy benefits we have identified in terms of value, right? We have OpaL as well, which is going to derive certain benefits. OMPL with MRPL, MRPL with HPCL. So there are a lot of synergy benefits here and there. So if you can give some quantification of number or directionally, that will be great.
The number would be very difficult to give. In fact, we have also identified only opportunities. Numbers are difficult to give. But I think -- see, from your perspective, probably you will do quicker a calculation than me. If you look at, for example, with or without the restructuring MRPL and HPCL group, right, today HPCL has refining capacity of 23.8 or 24, and MRPL has a capacity of around 15. So let's say, 39. That's exactly around the level of products which HPCL markets. So if you really look at that, actually between refining and marketing, it is going to be 1:1 relationship. This is without our previous structural adjustments. So if you look at -- and also, MRPL is located in a region where I understand it has tremendous benefits in terms of freights, [ et cetera ], because there is no competing refinery in that area. So that way, the group on the whole gets to monetize substantial amount of synergy.
In last year, like even in March also, [ market ] prediction was getting distributed among all the oil marketing companies. So the diesel was also off-taking. Indian oil was also off-taking. So now today, is it the case that the entire production is belonging to HPCL? And we're able to derive that benefit without the restructuring?
Sir, it is none of our intention to disturb their ongoing relationships. But whenever they come up for review, you can understand the direction it will take.
Okay, yes. And sir, second thing about the foreign exchange loss. So I think if we take a INR 4 depreciation on a quarter-to-quarter basis, and I think we had wondered about 31st March to 30th June date. In that case, the amount of liability, which is going to be USD 2.2 billion, if I assume a loss of nearly INR 900 crores because of foreign exchange. So could we an idea that out of this INR 16,000 crore, INR 17,000 crore debt you had talked about how much is in foreign currency? And then what are those liabilities which are there in foreign currency? And then second is, if we look at our gas relations, the currency benefit comes with a 1-month lag. So I think the March currency applicable for the month of April. So it is the same case for oil as well? Or is the same month currency which is applicable?
No, no. Not in case of oil.
So oil is the same month currency. April month currency applicable for the month of April relations, is that correct?
Whatever price is declared, the exchange rate is taken as per the [ RV reference ]...
For that month? Or for the previous month?
For that month.
For that month. But sir, in case of gas, we heard from all the consumers that the gas currency that the currency takes effect with 1-month lag. So for the month of April, they pay as for the month of March.
That's true. That's true.
Okay. So full benefit of currency depreciation is yet to come in the second quarter numbers?
Yes. Moreover, we have -- still we have got a sort of natural hedging, okay. As the rupee depreciates, it had the impact on our sales revenue.
Actually, we were doing this quick calculation in the morning. If you look at the last year, our revenues were also dropped [ INR 85,004 crores ], right? If it is 1 percentage adverse movements in rupee, then it means roughly, roughly, I am saying order of magnitude around INR 850 crores. And it's our foreign exchange gearing -- I mean, foreign exchange-denominated loan was to be, let's say, INR 16,000 crores, and that is INR 160 crores. So in fact, you have a margin of 5 is to 1.
Right, sir. But in the given quarter, somehow that margin is not getting balanced. So I wanted to know what is the foreign exchange debt we have in the stand-alone entity? So out of the INR 17,000 crore debt, which we have just mentioned, how much is in the foreign currency?
You can give me, actually, a couple of minutes. I'll give you last figures. No, no. We could actually give that figure.
Sir, should we move to the next question?
Okay. In the meantime, I -- this I owe explanation as to what is the figure? As far as breakout between [indiscernible] related and this, I owe to all. I'll -- before the call ends, I will give the number for you.
Moving to the next question, we have Mr. Vikash Jain from CLSA.
So 2 questions. One is on this ForEx movement. Could you please give me the ForEx number for 4Q and 1Q last year also?
4Q and 1Q?
And I think it was a loss not a gain. Because if it is a gain, they'll not [ figured ] in the OpEx, right?
Yes. What are the figures? I think INR 50 crores? It took a [indiscernible] income.
It was INR 49 crores gain.
Where? In 1Q last year?
Yes. Annual also almost same number, INR 50 crores gains.
And in 4Q last year?
And 4Q last year, it was INR 188 crore.
Loss.
Sorry, loss?
Yes.
Sir, if that is a figure, could you also explain the Q-Q movement in OpEx? Because if we adjust for that since you say that -- of course there's -- if you adjust for the ForEx loss number, then Q-Q the OpEx has fallen significantly. Now I mean, what are the key elements which has led to that decline in other expenditure, which is 54% Q-o-Q?
Certainly. There is a decrease in -- this is from Q1 to Q1 of last year?
No, no. Q4 to Q1 Q-o-Q decline.
Q4 to Q1. Yes. There is a decrease in workover expenditure by INR 429 crores; decrease in water injection by INR 77 crore; decrease in repair maintenance by INR 240 crores; decrease in contractual payment, INR 168 crores; decrease in other production expenditures, INR 247 crores; then administrative overhead also INR 277 crores; CSR expenditure, INR 128 crore; then provisions and write-offs, INR 151 crores. These were the reductions.
So sir, what I want to understand is of these, if you were to look at, say, the workover in some of those other things, is it simply that there was less activity this quarter? And from that perspective, this quarter is a bit of a one-off? And we'll, of course, come back to that higher expenditure?
Yes. It depends on the number of wells which are worked over and the number of days which are deployed for the workover [indiscernible] already and the rate. It's a combination of both.
So 3 things. Do we expect to generate [indiscernible] impact?
In your opening remarks, there is a 40% reduction in workover rig cost.
Yes, yes. We'll just give you the number.So actually rig cost has come down by 39.51% for Q1.
Some of this decline should be sustainable in terms of...
Right, right, right. The effects of this reduced rig cost will be there in the future also.
And -- but there was also impact of lower activity, which is -- led to lower workover...
Yes, if the activity is more, the cost will go up.
And just one more thing, sir, coming back to the -- if you have the loan number, the ForEx loan numbers ready? Otherwise, I cannot understand that since your debt link to acquisition is not allowed for interest CapEx shield and you have about INR 32,000 crores of CapEx planned, then in that case, obviously, all the internal accrual should go in paying down the acquisition debt, and CapEx should be funded by fresh debt. Isn't that how we're thinking about it? That should be...
See, that planning we are doing the best possible, but we have a tax experts in ONGC. So we're doing full tax planning.
Sir, what I wanted to understand is if that is really the case then this acquisition debt should go to near 0 by the end of this fiscal, and you should only have debt net interest reduction of tax shield is allowed. Isn't that how it will play out?
So that's music to our ears. We also feel the same way. But I think in terms of numbers, specifically, on 1st of August, which is yesterday, the number was INR 16,670 crores, okay, and out of which rupees denominated is INR 5,980 crores; and rest of it is actually denominated, which is 10,690. From predominantly being a [indiscernible] denominated earlier, the character has changed significantly, and it is a reduced figure.
Okay. And so sir, is there -- what I want to understand are there any commitments in terms of those being longer term? Or is it flexible? I mean, you can repay it as when you want?
It is flexible. Yes, yes. We have kept it flexible. We have retained adequate flexibility as to be repaid as and when we want.
Also sir, coming back to my question. So broadly, isn't it correct to assume that although your debt will not fall to 0 by -- in about -- in [indiscernible] -- by the end of this fiscal. But debt with which tax shield is not allowed will fall to nearly 0. Is that how you...
It will fall very sharply, but it is near to 0 or not, number one. Number two, if you really look at post-September, actually, see what would have start happening is the tax [indiscernible] is expected to be significantly higher this year. And also dividend repayments -- dividend payments would also happen. So the final dividend of the previous year and possibly whatever is considered by the board for the current year, et cetera, would also become due. So while there has been a sharp increase in the initial 4 months, actually that trend will continue.
Sorry, sharp increase of what?
Sharp decrease. Sharp increase in repayment with sharp reduction in loan amount. But the rate of repayment will not continue to be the same.
Sorry, but sorry, sir, if I'm missing something, then please, maybe if you could explain that to me. But what you have said, there is still about INR 25,000 crore plus of CapEx which is -- which you have committed and which you are likely to spend in the remaining 9 months, okay. Now what I cannot understand is why that CapEx cannot be funded by debt and all your internal accruals go to repay the -- this debt. That is something which I am not -- is there is something which is stopping that, which I am not able to understand?
See, I mean, these are some of the questions which the teams within the company keep on handling on a case-by-case basis. But being a responsible PSU, we do not do anything which is necessarily targeted at reducing the tax out go for which is seen aggressive from tax perspective. But any worthwhile opportunity for ensuring the there is an optimization because of the -- of choosing alternative options in terms of financing, that is the way.
Sir, the other thing was, you did sound optimistic about subsidy burden not coming to you. Is there any discussion with the government, anything that you can share with us in terms of how the thinking is panning out? And [indiscernible] -- I mean, I understand the caveat that you have given that if crude is around current prices. But is there an understanding of what happens if crude goes $10 ahead or something like that? Is there something that -- I mean, broad -- I understand that nothing is finalized but some broad discussion and the way they are going?
No, I think on these issues, we do not interact on a daily basis. But at these prices, we have not seen any conversation on the crude price or the subsidy discussion in the government. So we don't believe that it's the level at which any such discussion will be triggered.
Sir should you want to take more questions, or...
Maybe 1 or 2, we can take.
So we have next question from Mr. Rohit from Four Caps (sic) [ BOB Caps ].
This is Rohit Ahuja. I'm from BOB Caps. Sir, just to clarify, you mentioned about debt repayment, but you mentioned there are other avenues like divesting noncore assets, like you mentioned about OMPL. Will you be also considering OpaL and your holdings in IOCL that you could divest to repay most of the debt?
See, I have started by saying that the current debt level, and especially -- even as on 31st of March, it was 0.1%. Debt-equity ratio was 13%, .13. So from that perspective and with the reduced numbers, as you've seen, from INR 24,000 crore we have fallen off to something like INR 16,600 crore. So it has come down drastically. So it's not, number one, a level about which we are uncomfortable about at all. That is one. Secondly, none of the divestments is being considered because of the financial compulsions. We believe that is a better way of having the entities to align them or realign them with the other entities such that the more value is realized. Only about [indiscernible] we have taken a call that it is no longer strategically important for us to continue holding in it. And also we -- today part of our offshore operations, we are already relying on more than one party. So that is a decision from a different perspective that it is no longer strategic to hold that. But none of discussions on the assets is emanating out of public compulsion to liquidate these or come out of the financial stress. We are in none. We are in a very comfortable zone today. And as regard, you talked of OpaL, and you also talked about IOC. So again, we are in no hurry or compulsion to liquidate any of these investments because the ISB shares are at a level which, I mean, it's a [indiscernible]. One case is at the level at which they are not justified, so they are significantly below. And as far as OpaL is concerned, yes, it is now fully operational plant on -- it's -- well, being that would be -- the level of utilization is increasing day-by-day. And this year, we anticipate that fourth quarter we plan to run at 100% capacity. And notwithstanding a substantial debt on its balance sheet, it will be -- after taking into account all expenses, including expense, fourth quarter, we hope would be positive.
Right. So in sum -- this talk -- when we say conclude that is for -- at least for this year, you are not looking to divest any stake of IOC considering that -- the oil [ calculation ] seems to be good annual internal [ gross ] and remains elevated?
No. These are strategic investments. But at the same time, there is neither a no nor yes. You [indiscernible] maybe we will speak again and [indiscernible] but the plain point I've made is none of compulsions for us. We are in a very, very comfortable [ zone ]. So there is -- none of the decisions on reorganization are being taken with a view to liquidate or reduce the debt. That's my sole point I'm making. Each decision is being taken on its sole merit. So that's the message I wanted to convey.
Right, sir. So sir, lastly, on the OpEx cost discussion that we had from the previous questions. So we usually see the trend that in initial quarters the cost remains low on a per barrel basis. But then in the fourth quarter, it tends to get elevated. As you said, many of the contractual commitment costs are loaded towards the end of the year. So that's kind of a trend we can assume that it will be at current levels, INR 4,700-odd-crore. And then in the fourth quarter, it could jump to like INR 5,500 crore to INR 6,000 crores. That's a normal trend to assume for your cost?
See, if you are assuming that the exchange loss will again take place, then it will benefit the sales revenue also. Simple. So that's the...
I'm sorry, another question. But as you said workover expenses and number of days are efficient and all so...
No. With the [indiscernible], you have [ process ] cost coming down and with -- but less than this year also. It should work at the same level, unless something serious happens.
So you don't anticipate any major changes from the current other than ForEx, I would say?
Yes, yes.
We have the next question from [ Mr. Rahall ] from [ ICI Credentials ].
This can be the last question?
All right, sir.
Okay. Okay. Please go ahead.
Just a question on the operating expenses again. Just from a understanding perspective, so basically, you have contracts in dollars. And when the rupee depreciated, those contracts got expensive in rupee terms for you. And my understanding is very correct?
Yes.
So in the next quarter, when the [ rupee ] appreciates, this INR 700 crore impact should remain, right, for the next few quarters?
No. no. It will also come down. See when the liabilities have to -- if the quarter-end liabilities are there, those have to be retranslated at the exchange rate prevailing on that date, okay?
Actually, I think I can -- there is one confusion. One is increase which is happening because of the OpEx denominated in dollars, right? There you are true. There you are right. But then, there is another element which is happening because of the retranslation of liabilities. Now suppose rupee is today, let's say, INR 68.50. And it continues to stay at this same level, the liabilities will also be exactly at the same level. So the reevaluation of liability impact will be 0.
I got it. So much is the breakup in the -- what is the [indiscernible]...
A breakup actually -- a very quick figure. Out of this INR 900 crores, you can assume around INR 600 crores, INR 625 crore-or-so is because of that. This is a quick figure, not necessarily the exact figure.
Okay. So INR 600 crores is the OpEx. INR 300 crore in the liabilities.
The other way around. The other way around.
Okay. INR 300 crores is the OpEx.
INR 575 crores to INR 600 crores something is the quick estimate we are going give. But take it with that caveat that it is not necessarily -- either INR 625 crores or INR 575 crores. But it is that range, not necessarily miles apart from this.
At this time, I would like to turn the program back to the management for any final or closing comments.
Yes, so thank you very much. And thanks for all the support, and we value all your being here today at this great evening. And very happy to answer your questions off-line also if you have any. And special thanks to [ Arcadian ] for having taken trouble to organize this call. So thank you very much.
Thank you very much, sir. I would like to thank all the panel members and the management team and the investors who joined us today. Hope you all spent a useful time. That does conclude the conference call. You may all disconnect your lines now. Thank you very much.