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Oil and Natural Gas Corporation Ltd
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Good afternoon, everyone. I'm Harpi Kapu, the moderator of this call. Thank you for standing by and welcome to second quarter financial year 2019 earnings conference call. [Operator Instructions]So I would like to now hand over the proceedings to Mr. Subhash Kumar. Thank you, and over to you, sir.
Thanks, Harpi. Good afternoon, ladies and gentlemen. I'm Subhash Kumar, Director of Finance for ONGC. And on behalf of ONGC, I welcome you all to ONGC's earnings call for Quarter 2 FY '19. Thank you all for joining us on the call. I'm joined here by my colleagues, Mr. Bansal, the Chief Corporate Finance; Mr. Pankaj Kumar, the GM Chief Corporate Planning; Mr. [ Devinder Sanpleca ] GM [ of the ] Head Corporate Accounts, representative from ONGC Videsh; and Mr. Prakash Joshi from Investor Relations. ONGC has compiled these financial results for the quarter in the 30th of September 2018, which had been reviewed by the strategic auditors. The financial results have already been released on 3rd of November through attached 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 you a brief synopsis of the results. The company has earned a net profit, that is profit after tax of INR 8,265 crores during the second quarter of FY '19 as against INR 5,131 crores during the second quarter of FY '18, an increase of INR 3,134 crores. In percentage terms, this is an increase of around 61%. Similarly, the profit after tax for H1 FY '19 has also increased by INR 5,393 crores, that is around 50 -- 60% from profit after tax of INR 9,015 crores in H1 of the previous year to INR 14,408 crores in HY -- FY '19. The increase in net profitability during Q2 of FY '19 versus same quarter of last year is on account of increase in sales revenue by INR 9,018. Similarly, the increase in profit after tax in H1 FY '19 is also due to increase in sales revenue by INR 17,251 crores. The sales revenue of Q2 FY '19 has increased by INR 9,018 crores, an increase of 47.8%, at INR 27,900 crores as against INR 18,884 crores in the corresponding quarter of the previous year. Similarly, sales revenue in H1 FY '19 had increased by INR 17,251 crores, an increase of 45.7% from INR 37,777 crores in FY '18 to INR 55,028 crores in H1 of this fiscal. The sales revenue in Q2 has increased mainly on account of increased sales revenue from crude oil to the extent of INR 7,026 crores, increased sales revenue from natural gas by INR 1,056 crores and increased sales revenue from value-added products by INR 1,070 crores. The sales revenue in H1 of this year fiscal has -- this fiscal had increased mainly on account of increased sales revenue from crude oil by INR 13,755 crores, increased sales revenue from natural gas by INR 1,904 crores and for value-added products, INR 1,892 crores. Rebuilding the ARPU during the second quarter of the current fiscal net of VAT and CST bought at rupees at USD 73.07 per barrel as against USD 49.43 per barrel in the same period of last year. That is an increase of 47.8%. This was for second quarter of increase. The exchange rate of rupees versus dollars stood at INR 70 -- INR 70.03 to USD 1 vis-a-vis INR 64.29 in the second quarter of FY '18. That realization pass-through in rupee terms stood at INR 5,117 per barrel in Q2 of FY '19 vis-à-vis INR 3,178 per barrel in Q2 of last fiscal, which amounted to an increase of 61% in INR terms. Similarly, gross billing for crude during the first half of the current fiscal was at USD 72.28 per barrel. Again, this is net of VAT and CST as against USD 48.92 per barrel in that same period of the last year. This is an increase of 47.8%. The exchange rate of rupee versus dollar stood at 68.51 vis-à-vis 64.37 in the first half of FY '18. Thus, realization for crude in rupee terms stood at INR 4,952 per barrel, in HY -- of the current H1 of current fiscal versus INR 3,149 per barrel in the first half of the previous fiscal, which amounted to an increase of 57.3% in INR terms. The amount of proppant petroleum has increased, which is a direct consequence of the increase in revenue by INR 190 crores from INR 515 crores in Q2 FY 2018 to INR 705 crores in Q2 of this fiscal. Similarly, the amount of proppant petroleum has increased by INR 370 crores from INR 1,016 crores in H1 of FY '18 to INR 1,386 crores in H1 of FY '18 -- '19. The operating expenditure has increased by INR 958 crores. That is around 33% from INR 4,210 crores in Q2 FY '18 to INR 5,168 crores in Q2 FY '19. The increase in Q2 of this fiscal is mainly on account of increase on repair and maintenance, which is INR 170 crores, financial of materials, INR 339 crores. This impact is on account of LNG at the past year rate to be consumed at C2-C3 plant. In the past, book expenses INR 24 crores; staff expenditures, INR 90 crores; workover expenditure, INR 53 crores; and mature partly shut off by -- offset by increase in contractural payment of -- a decrease in contractual payments of INR 99 crores. Similarly, we are breaking expenditure in H1 '19 has also withheld -- has also increased by INR 1,125 crores. The increase in H1 FY '19 operating expenditure is mainly on account of increase in staff expenditure, INR 130 crores, which is attributable to an annual increase increment and PRP; production of materials, INR 527 crores. Again, this has stood over the C2-C3 plant; transport expenses, INR 65 crores; repair and maintenance, INR 120 crores, which were offset by decrease in workover expenditure by INR 73 crores; bottle injection by INR 35 crores; and contractual payment by [ Edifice ], INR 63 crores. DD&I cost for Q2 FY '19 stood at INR 3,531 crores as against INR 3,507 crores in Q2 FY '18. That's an increase of INR 24 crores, that is less than 1%. Similarly, there is also an increase of INR 448 crores that is 6.4% in DD&I cost-driven HY (sic) [ FY ] of this fiscal from INR 6,970 crores in H1 of previous fiscal to INR 7,418 crores in the first half of this fiscal. The increase in H1 FY '18 is attributable to increase in the depletion by INR 335 crores and depreciation by INR 127 crores. Getting to FY '19, the [ executable ] increase stood at INR 6,677 crores as compared to INR 4,500 crores in Q2 of FY '18. That's an increase of INR 2,107 crores. And this translates to around 47% increase in percentage terms. Similarly, the statutory leverage have also increased by INR 4,350 crores, that is 48.4% from INR 8,991 crores in H1 FY '18 to INR 3,341 crores in H1 '19. This increase is on account of increased surge revenue of crude oil prices. Well friends, with this, I finish my briefing of the second quarter results of financial year 2019 We'll be very happy to take questions from you. [Operator Instructions] Thank you, and thanks for listening.
[Operator Instructions] First question of the day we have from Rohit Ahuja from BOB Capital Markets.
Sir, with respect to your net decline that we have seen or hear from about INR 35,000 crores to INR 14,000 crores, was this just debt you paid for the HPCL acquisition that you had raised?
Yes. So the only debt which ONGC has on its books on account of directly or indirectly HPCL acquisition. So when we pay that, we pay it at the same debt.
So what is the quantum of that debt less now in the books?
So you top up the figures, it's around 32% of the entire listed price.
INR 13,990 crores is the total figure as far as the half year results. As far as the foreign loan is concerned, what is it again?
One loan -- I wanted only 1.1 billion.
Right. Sir then when we look at the debted dividend that was not paid in this quarter, you had imagined there for the board, but apparently, you haven't paid any outstanding dividend. So what can we -- I mean, do we expect a kind of a buyback to come in soon? Or how should we read that?
A couple of things. One is that crude prices have seen a lot of volatility. And if you look at all those other entities, really they declared a dividend twice. One is adding dividend after third – third quarter. And then there is a timely dividend, which is paid after the end of -- yearend the approval of the annual accounts AGM and that. So that is one and secondly, obviously, the management is considering different options, what is the best way to reward the stakeholders. So that discussion is ongoing. I don't believe there is no decision that could be better. They could be declaring dividend only post the third quarter results, when we have that visibility in prices and realizations. And that's the stage, we will be in a position to take the call.
So what would be currently our cash and cash equivalent with our balance sheet?
Zero. We paid -- we don't retain any cash and the borrowings, expect an insignificant amount.
Okay. So if we are a thing, then we don't currently have a room for going for a buyback if you're asked about? You won't have to borrow short-term funds for that?
See, sir, the percent of good prices -- company -- it's not that the company does not have capacity to pay dividends or do a buyback. For some of us, striking the right balance and choosing the timing. So probably, if it was considered necessary that given the volatility in prices, which we have seen during the last time they have done so when prices are flat from mid 80s to low 70s. So then if all was taken, why not wait till the third quarter and then take the call?
Okay. So if I were to say that, okay, you will most likely -- any such decision will be post Q3 numbers. And if you go by the results that you've given, there were no subsidies and you continue to maintain the standard, there won't be a subsidy burden even in the further quarter or fourth quarter for...
Yes.
Next question we have from Probal Sen from IDFC Securities.
I have 3 questions. One was, oil production has been a little bit weak if I look at the H1 numbers. Now if I look at the kind of run rate that is required for the guidance that was previously given, that seems to be a little bit of a tough ask. So have you evaluated FY '19 oil and gas production guidance as of now?
So remember 1 year ago, the market price actually with oil production is not so good for half year by a significant number. This has been attributable to big key problems and public corrective actions have been taken. So what I understand is we are under consultations with the concerned departments and we anticipate that by the end of this year, we should have been -- or there should be production increase of around 20,000 barrels per day by March '19 due to administrative gain from new developments and sidetrack buys and the implementation of the ongoing schemes. So that is what we anticipate. Now with this, whether we will be able to come -- we'll be able to achieve our objective last year's -- sorry, the intended numbers or we will be able to surpass it, very difficult to say at this stage, but we anticipate to be close to it.
Okay. So if I can just refresh the numbers that you sort of guided to. You're still looking at somewhere around 23.9 MB on a stand-alone basis for oil, and about...
No, no. no. Not 23.9. NPAT in FY '18 on stand-alone is only -- is around 22.3 and we expect to reach close to that only. In terms of debt visibility, then we have been in production with respect to last year then we'll be again up by around 5% or so. As you were up 5% with the visibility, we've seen it. So that's continuously well-received. Oil this year, we expect to maintain close to whatever we believed in FY '18. And as far as mentioned, by the end of the year, we expect that the production on a daily basis, yearly production will increase because some of the projects we lined up to come with us this year getting delayed. And so the opportunity should be available by March or so. So that, in fact, gain as a year -- annual basis will be revised in '19 only. This is really close to FY '18 buildup.
Right. And sir, I just wanted to get some sense on the exploration-related write-offs. Sort of -- what sort of run rate should we be building for H2? Is it be -- will it be roughly at the same rate as H1? Or should it increase, given your drilling programs?
Yes, as far as development -- as far as development of write-off on contract with drivers is INR 1,838 crores as compared to the last half year numbers of INR 1,749 crores. And this is such an area we don't have any control. But given the profile of the wells, we don't expect this number to have -- should we have last year's number back in '18.
So it should be somewhat similar to what was FY '18 full year?
Yes, yes, yes. Should be but there is no prediction.
Got it, sir. You expect it. The last question, any update on the whole East Coast development? Any change in time lines? Can you just update us on the production start date for both gas and oil from the...
Sure, sure. East Coast, as far as it is concerned, one of the [ lead work ] connected has already been put on production in March '18. That is in H1 in [ working start ] and that is contributing now. The acquisition is close to 2 million-plus per day of gas from that. And that is expected to increase by another [ 1 million in that time for sure ]...
By how much did you say?
Another 1 million or so by next quarter. We now come to the biggest part, that is the '18, '19 by to probably what you wanted to know about. As of now, there is no change in the time line. We still -- we maintain the same. They actually commence production from December '19 and out from March '21. To give you some confidence on that, we have already built 10 wells and I think by 2. And currently 3 big [ ramps ] continuously working over there as the drilling activity is continued. And we are thinking what's the actual sort of target because these gaps we want to fill from the existing pipeline structure which is earlier from that. Or more simply, we have a sharp pipeline which we have needed for focus of the movements to the existing structure. And the land form facilities are also there. So the projected time line should be [ EGF ] awarded. The biggest -- biggest time line I have taken like along these items, I think it's clear to the -- relative to the subsea production facilities which are -- so the annual voucher has been awarded. So -- but under voucher, contributors are Indian.
Next, we have Avadhoot from CIMB.
So first question relates to the effective tax rate, with regards to really marginally [ 42% ] in the first quarter and 55% in the second quarter. As far as in the first quarter workaround, the specific number was production related to price and the explanation given was that the interest on the acquisition [ especially ] the loan on the acquisition of shares was not tax deductible. I noticed the deduction in the tax rate in the second quarter. It seems low given that A, obviously the loan itself, you have been paying at a fast pace. That's in particular interest would have reduced. Secondly, the dividend income in the second quarter, which was at least 2% of pretax profits, which again would impact sales. Could you shed some more light on why the tax rate has still not dropped despite these 2 factors?
See, actually it was due to tax paid, effective tax rate was 34.95% as against the similar number of 29.08% during the Q2 of previous year. This means usually that loans have been closed and promissory note on the loan taken for reservation. And there are certain you have, other dividends which are not available. So there is not much change but otherwise, the rate is around -- the half year, the rate has been 35.14%
Have I understood that the normal exchange loss as well, represented INR 500 crores. And is that also not a loan?
Yes, that is also there. This amount of interest and for...
And so this allowance of interest in addition to increase, there's a normal -- there's also a foreign loss, right? Which is INR 546 crores in the second quarter. Is that a [ loan ] level reduction?
No. That was -- no.
Tax rate, not on this loan.
So the exchange loss will be contributed -- attributable to the loan taken from acquisitions is the -- [ which allow them ].
Yes, but on the volume side -- as per volume plan, this means the second quarter's related to the first quarter. Okay, you've done so much -- the dividend income coming in the second quarter, which is tax-free, given that the fact that it drops more choppy?
The dividend is tax free. [Audio Gap] notably has -- which are disallowed,[Audio Gap]
We have saved the dividend income during second quarter. So although actually, you would see that the weighted average right now, the figures of the half year is 35.22% and only for Q2 is 34.95%. So right now, I don't have the numbers of first quarter with me but then first quarter would have been close to around 37% also this day. That's why the weighted average is 35.22%. So compared to the first quarter, it has come down. But given that with working just on the exchange loss on the acquisition, the cost are acquisition-related loans. All this allow this continues to be high, notwithstanding the fact that some of the rates should have come down because of the dividend.
Okay. My second question has to do with a royalty on the -- breakup of royalty in the presentation. The royalty on relating to [ joint ] sector on crude is what I'm referring to, which is #12 on your slide pack, okay? That's INR 89 crores in the second quarter related to INR 1,032 crores in the first quarter despite the fact that the revenue on crude oil from joint ventures still remains to be high. So anything exceptional, whatever which has resulted with the lower amount of royalty on the joint venture crude?
It seems [indiscernible]. I think the amount paid, pricing on the contract sales.
Yes. In fact [ they be don’t have some 15% convert ] we are not paying royalty. At the rate of 100%.
In fact up to 14.5 -- you are paying a royalty not only above [ CF ] but paying a royalty on the share other partners, namely [ reason of joint ventures ]. As far as the dividend from government of 57,000, we dropped in royalty on several partners.
Okay, so this relates to your share only?
Yes.
And according the impact of dividend also changes also will be in.
Yes, naturally.
Next question we have is from Sabri Hazarika from Emkay Global.
Yes. I have 3 questions, sir. The first one is you had this -- you have mentioned the press release that the Bombay Offshore is focusing you need, that was supposed to come. That will be late because of some problems with the suppliers, so you are going for some new contracts. So -- and due to which, 15 went down and [ WO ] 16 has not come online. So what is also a reason for good production for being so significantly mixed down 7% [ right away ]? And when do you think it should be -- will be, like, different?
Yes, [indiscernible] this Bombay Offshore production unit, that has been volatile joint operating. This is giving an order in Abu Dhabi. There were certain problems in between the contractor and associate partners. So what we see has taken steps already. The job has already been awarded. The work has commenced. Only some 3%, 4% of the last part of the work is remaining. We expect that motion to sail out from Abu Dhabi sail by mid of February and come to India. And then the production increase is expected there so [ WO ] 15 as you already mentioned are already there. Once this unit comes here, the homework is completed, the venture starts flowing. And yes, definitely that is the reason why the production could not increase in the current year. We were expecting this multiple to come post '19, but got delayed because of that, some problems within the partners. But the work has already commenced and has been awarded.
So you say that you mentioned around 0.35 for [ million ] time of lost outlook of that. So that was for first half, 1H FY '19?
See, we are expecting the production to increase by around 10,000 to 11,000 barrels per day and that we will see we were expecting that outcome as part of the year. And 11,000 barrels per day constitutes to almost 0.5 million tons per annum. For half year, this is around 0.25 million, 0.26 million tons. And that kind that was what we're expecting from [ the same ].
Okay. Second question is on this ethane assistor. So this is the [ pickup ] in gas where you said that you'd be getting premium prices. So is that accounted and nominated in your production or it's part of the production profile [ so far ]?
So the nominated fields are only [ 2% of production ] but this falls under the category of deep water wherein we have premium prices. So I think normally that would be a pricing volume.
And I didn't -- do you think that it will produce [Audio Gap] If I do a difficult calculation nominated locked revenue divided by total production, I see that[Audio Gap]looks to be around 3.067. So there is no premium being seen from this -- [ what this debt's on ]. So currently, you are selling at the '18 debt strength or you are selling it at the higher rate?
We're concentrating on the dividend payment.
Quantity currently [ trumps ] the dividend. So you say that it's clear that it's less than that?
Right now, but you're right. Yes, for East Coast, we are selling around -- leasing out 3 million less order in sales of which around 2.4 million is for premium pricing. And that has been contracted with the -- through some fixing contractors. And we are getting a premium price over there. The total quantity with respect to the ONGC total increase where ONGC is currently commencing the plus 60 million target. And as the quantity of the deep water is around 2.4 million. So that kind of details you would not see with the total revenue part.
Okay, that's fair enough. Second, another 2 questions I had. One is what was the profit numbers for OVL for Q2? If not Q2, then for Q1?
Q1, OVL profit was INR 667 crores. Q2, [ is yet to have the price ].
INR 667 crores for Q1?
Yes.
Okay. And just one last, sir, accounting question. You have got -- you now gave the press release on the exchanges and you also sent the IRC file to the revenues separately. So there's a discrepancy in the numbers relating to JV versus a nominated block in the [ bar ] the dividend. So any particular reason for that? Because when you have a press release in the activities you have mentioned, JV production to be 0.775 million tons. But in the [ IRC ], it is 0.794 million tons. Which is totally saying that the dividend between JV and nominated is somewhat different so in the 2 releases. Anything specific for that?
No, I think no specific reason the [ liquidity ] comes from that. So logically, they are accounted for the same. As you pointed out, we looked and correct it.
Next, we have Bhavin from B&K Securities.
So first, what I just wanted to double check, we were hearing about some co-agreement on which there have been revised standard interest on borrowings for acquisition is also tax deductible. Could you shed some light on that?
I think that right now, we are maintaining the standard vis-à-vis we will not declare of our [ mindset ] that post some governmental [Foreign Language] we came to the view that it was more likely that this will be disallowed. And that is all we have treated it from the previous announcement and the -- that is all we are maintaining today.
Okay. And the second question relates to development software. Can you please share which one you have preferably in development? I mean, according to this GST results which were also reported and they had also taken on a debt to take -- for a buying out their stake. And those were reported that they've accrued that will be now the interest in deductible. So could a similar amount be applied here as well? So I wondered about that, too.
We'll just -- we'll go about it when it comes.
Okay so we'll go about it -- So my second question related to the sales number. Right now looking at the sales, which has fallen sequentially. Do you think that this might be an adjustment that we have made in the quarter?
Bansal, can you please take this for us?
Which number you were talking?
I'm referring to the sales number in the JV side, close to this number on the JV side, which has fallen sequentially. Is it related to the royalty adjustment, which has been made from 15th of August that you mentioned?
That's right.
Okay, great. And sir, one final question from my side. On the MRPL core profile, are there any thoughts on the restructuring? Where are we on that?
This is a working -- a work-in-progress. There, now, we have prepared the information under OPaL and it is -- we are moving with rigor also as far as the value is concerned. MRPL and OMPL kind of discussion is going on with the relevant stakeholders. So MRPL we have -- right now we have included the equipment to the extent of INR 300 crores both between MRPL and ONGC during the -- we did it in September. And it's getting converted one of these days. So a couple things on MRPL, that call will be taken in due course.
There are time lines on these that we can check?
I think as far as the OPaL is concerned, we think that we will be closer to a visibility of any of these solutions before this fiscal. OMPL also, we don't have clarity what we want to do or whether we want to convert it into its own subsidiary of MRPL or we want eventually might retain MRPL or we, somehow involve HPCL that will still -- that will also be clear. And as for MRPL and HPCL is concerned, I'll say that we'll -- that we are talking of quite large entities and that takes some time. It might not happen within this year.
[Operator Instructions] Next, we have Aditya from Macquarie.
Just 2 questions. So first is on the recently opened centers which have been approved. Can you give a broad sense on the earnings impact and maybe future production impact as well? Second is on the dividend payout going forward. If I had to say a 40% to 45% payout, will that be within your expectations?
I think, as far as the recent EUR valuations are concerned, we are intently looking at them and deciding because these are the benefit of going forward with this. And also, if you look at the valuations, there are quite a few things which will be required for the application. So that market is going on, and we are trying to work out the number as to how many of our teams will move the benefit from that or that would fall within that. As far as the dividend is concerned, actually, we have been looking at overall number partly out. While there is no reason to believe that we will not maintain the same payout ratio as the last years, now the composition could change depending on the -- if we're going for buyback or dividends. So those are the kinds of things which are under discussion. And the volatilities are the only reason why we target that big number, rather than to -- a subsequent period whereby [ defined dividend ] have muted clarity on the anticipated profits for this year rather than taking the fall at the point where then prices were falling very sharply.
Okay. And just in terms of the EUR incentives, any start date on when it will be applicable? And can you just confirm that -- so oil as I understand, CESS can be cut in half and then jointly would be on gas by 25%. Is that a broad understanding on whatever is nominated?
Your understanding in principle is okay, but there are certain clarifications needed. And all those benefits will be a point over basis and all those [ SKUs ] which are already in progress, we do not get anything. And whatever's new project will come probably, then it will be applicable. So for that, clarification is needed for normative compare. At the same time ONGC internally started looking into the options where all we can put in some kind of EUR scheme and increase the production. However risky, I think there's no more -- we have started looking at 3x3 where the benefit can be accrued from that. And the production also can be increased during that. And definitely, overall recovery from the fields will be applied and [ reallocation would be built ]. And how much will be the impact, it will be on an annual total day sales. That is still to be confirmed or certainly calculated. That is the situation right now.
Next question we have from Nitin Tiwari from Antique Stock Investments.
My questions have been answered, and Happy Belated Diwali.
Thank you. Same to you.
Next we have Amit Shah from BNP.
Just one quick question. It was so what have you been doing, say, around INR 30,000 crores of CapEx, right? While the production change hasn't been too much over the years. So just wanted to get a split of how much is growth CapEx and how much is maintenance CapEx? In the sense that this is how much we have to spend just to keep production at current levels and this is how much we spend actually to see if we can grow by 1% to 3% in the future.
So I think we don't have immediately the break-up available. But broadly, what we can tell you that we have around 13 to 14 products running, which have RTL around, I would say INR 60,000 crores to INR 65,000 crores. So that is the CapEx on growth. But what is the component affecting this year is that -- or any which one of the years that is not readily available right. That can be given offline. And just to add to this, you have still, I don't know how much is the right proportion for maintaining of how much is the growth. Now let me say, we see total oil production around 65% to 70% of the production is from [ aiding in ] maturities. And the biggest one -- all those fields have been producing for the last 40 years or so. So we are in one kind -- we are in 2 kind of products. Firstly, the new development activity in all these fields. At the same time, we are in marginal fields, which are doing prudent production. Development activities also does not increase production, they are just reducing the maturity rate, not really completely offsetting. So entails new growth marginal field comes and part of that also goes to sustain the production visibility would be available. Definitely one thing we said that the biggest development project which was [ by 3 and by 2 minuscule ] that was getting almost 50% of the total development project's CapEx allocation, around 34,000 -- INR 35,000 crores, INR 34,000 crores. So that project would start contributing from November '19. Thus [ gas and oil are even down ]. But broadly I understand.
Next, we have Sanjay Mookim from Bank of America.
If I understood one of your replies earlier, you said that you do not expect any subsidy burden on ONGC for the second half as well. Is this the result, please? Why do you expect this to happen?
Why do we expect subsidy at all? That's my question. Actually, considering firstly, we don't anticipate any subsidy because structurally, the whole mechanism of subsidy has changed. Both [ MS ] and HP -- HSP are being priced and the price is being given out on a daily basis. Even if we look at the subsidy, we believe that the other 2 products with public subsidies are written today. There also, it is not a [ productivity ] direct money per transfer. So over the years actually, the very structure of subsidy mechanism has changed. It is no longer possible to go back to a -- that's our belief, that it is no longer causing it to go back to a situation where subsidy is shared by upstream companies.
Is there any communication from government or any conversations that you had that might confirm this view?
No. None.
Because our apprehension, sir, is that the CPT payment on the LPG is likely to exceed the budgeted amounts very significantly this year. And if you look at the payment mechanism of upstream paying more than INR 18 or INR 15 a kilo on LPG, now the losses are higher than that actual as well. So I would just like...
Oh, so the analysis on that. As far as the -- especially LPG and currency market is concerned it would -- actually, companies are normally very interested. So it is either the government or the marketing companies. And also in respect to marketing companies also, it will be the same. They are being consistently reinvesting amount of subsidies. So I don't think there is any possibility of subsidy review [ that we have that will impact ] these people also as far as the upstream is concerned.
The second question I had was on one-off items in this quarter. Are there any additional provisions or revaluations, noncash items in the expenses for this quarter?
No, we don't have any other material changed.
I'm sorry, I didn't hear that.
We don't have any other provision. Those are normal.
Right. And my last question is on the A1-A3 field in Myanmar. The production is down a lot. When do we expect this to restart?
Actually, we are now going to start negotiations with the [ Myanmar ] government. And we'll get to publish to the relay what will happen in Myanmar.
[Operator Instructions] Next, we have Mayank Maheshwari from Morgan Stanley.
Just had one question, most related to the operating cost side and the cost inflation on the CapEx side. Are you starting to see some of that kind of filter through now with higher oil for your new projects as well as for the expansions that you're doing?
So I think we have given some granular analysis on different elements on of OpEx which are across the quarters. Definitely, there is some variation. We have talked of these CapEx expenditure and demand coverage expenditure having gone up but that was more the price of the annual equipment and we had the indicators. And workover et cetera, [ bottle injection ] et cetera. Individually, if I look at startup expenditure has gone up by 17%. The workover has gone up by close to 17%. This, I'm talking vis-à-vis Q2 of fiscal '18. But if we really look at, with reference to Q1 of the previous quarter, the startup expenditure has come down. The workover expenditure has come down. The production of [ our decision ] as mentioned has gone up and gone up significantly. But the reason for that is that C2-C3, the LNG for C2-C3, because in the previous year it had a much lower rate. It has come up the last year, it was 6.58. Last quarter, this year, the rate is 10.13. So Q2 '18, it was 6.58 for [ a Q2 ] and it's quarter-on-quarter -- same quarter of this fiscal year, 10.13. So this has risen substantially. But it is positive to the extent that at the end of the day, whether utilization of the level of C2-C3 also means that there is higher end total which is going into a far end of [ valve ] productivity is increasing. So this, directly, is not a cause of concern. And the repair and maintenance is the only thing where it has gone up by 27%. And because of the maintenance work which has been done. But then, that's okay. So these are the bigger items.
Anything on the interest? Anything on when you're hiring this infrastructure on rigs, et cetera, are you seeing any of that inflation trickle through?
It's not a cause of concern. Yes. So because, to the extent we have concluded the contracts, they have come down because it has been a while since we planned right now. But if you look at the -- it is very logical that when prices go up and if one were to start a bidding process today, definitely, it will not rediscover that same kind of prices. And so obviously, to the extent the prices tend to go up with the -- that tends to -- the oil prices, they will go up.
When do you think that will start to kind of trickle through in your earnings?
So it depends on the number segment [Audio Gap] an agreement for 5 years so we would get the benefit of it. So just to continue with the example, FY '19, the workover rig cost has -- well it has come down 80 lakh per day. In comparison, the rate is across the next one in FY '18 and now it is 46 lakhs. Those are the kind of savings which we have been able to get. But no we could get those because of the timing of the well contracting, which we were lucky. Now if one were to go into the market today, you would never get the rate of the kind we have been able to get. Now we would also face the same problem [ when we moved on the regional but the impact of this ] regional demand. But definitely, we would not continue getting the same kind of rates we would get for the cost leverage. But that is difficult to say so -- little things and 3 to 5 years it happens.
So the next 3 years, the impact of this from your perspective, it would be limited?
Yes. Definitely, we have negotiated on so many contracts requiring the customers for [ 8 weeks ] it was around -- below $30,000. So that benefit, we are still willing to have in the next 2 almost 2 years running.
Next, we have Amit from UBS Securities.
With respect to the subsidy burden, I see where you have clarified other times on the call that this is likely to still coming quarterly as well. But could we get the clarity that if we had a conversation with the government on this subject? And like, out of additional incremental evaluation, 75% actually goes back to the government. So does government understand this point right now that there will be no burden-enhanced government debt and will it go up, but that benefit will go a higher dividend? There is absolutely no conversation at all with the government on this point?
So I don't know, how did you categorize the conversation. People do keep on contracting over there. But there is a formal communication that has come? No. And I think that precisely the larger...
Excuse me, but like whenever you contacted them. Whenever you contacted them you must have indicated this point very clear that 75% of it goes back to you...
What I can promise you there, less and less support and one that through -- and we even had the time to process the regular around 84, 85, at this point, there is no conversation. That is what I can confirm. When our prices are significantly lower than that, then there is no question of any such conversation.
Okay. And sir, when we consider the eventual buyback and the subsidy for this event as per [ FY service ] for that one. If you have the buyback of shares, then probably you may not be able to pay any subsidy for them, which means there may not be any subsidy for them going forward. Because -- and if you're returning the cash to the government and the shareholders...
So one -- I think, one difference that when it is subsidy it goes to the government. When it is buyback it goes to all the stakeholders. No, I think coming back to that question per se, buyback has -- may or may not have its justification, but it needs to be considered on a stand-alone basis. Given what the share price is at a place I can normally -- where -- we think it needs to be at least at a significantly higher level. Now we have, I can confirm that we have been thinking about it because this actually is helping all the stakeholders seriously when the prices are at this level. So by that, if at all, that is justification from a very different logic than the subsidy. But you can definitely relate it to the payout. Now the level it -- there is a buyback level. We will continue to maintain the same amount of dividend that could be a question. So those are the kinds of discussions which are happening internally. I can't confirm on which way it is going. But definitely, it has nothing to do with subsidy. It may have something to do with the overall payout ratio. And that's the conversation. Conversation is not at all between buyback and subsidy.
Okay. And sir, but it has indications in either of the way for -- with respect to the cash conversion or cash which we delegate from our own operations. So this year, there was an underlying material risk for cash flow. And as we have been paying that weekly, more flows back to the government in terms of the [ oil price ] increases and dividends. So then curtailing dividends because it is considered buyback, then that will not allow the money to flow because if government is giving more [ rations ] in our hands and they must be saying that the dividend and the buyback from our side as well.
Yes, no. So larger profits will definitely mean a larger amount of payback, payout, whether it is by payout for dividend or look at buyback. That is understood even if you were to maintain the same payout ratio. The amount to be distributed, the amount the stakeholders, shareholders will be at, one way or the other. But I think one has to see in the context in which company is to be -- the consolidated, debt of the company is close to INR 100,000 crores. So considering that, the little cash build up during this period of -- let's say the noncash build up really. Reduction in debt at the ONGC level is not everything. It's significant to a certain extent but it will -- [ others see it significant ]. And for an -- largely an upstream entity, the even reduced level of debt [ on a consolidated basis ], it allows debt at a comfortable level. So if we want to embark on a midyear product or midyear project or some other acquisition that could happen, then our financials will be stretched. So this is the time we will have to build some muscle for that. So obviously, what we're saying is that overall payout would remain more or less the same. The distribution could change. All these are discussions...
Please go ahead.
All these are discussions actually, but no definite decision has been taken. And one of the -- one doesn't have to read much in terms of why the better -- the dividend this year because this quarter -- because at the end of the day, it has to be related to the volatility in prices. So going to have, on an overall basis, probably we will be maintaining the payout. That would be the end of it so that there is no dividend paid than what the shareholders get.
Okay. And thirdly, given the Supreme Court judgment which has allowed the interest on the accretion of shares to be allowed as the taxes are [ payable ], subject to the condition of adjustment of dividend. Is that applicable to ONGC as well? Do you have any clarity on that?
We have been looking to that actually. We have not factored that in this quarter accounts as of now.
Yes but if the civil judgment has come from Supreme Court, that -- we have that proof.
Okay. No, we have not factored in as far as accounts are -- stands second quarter is concerned but we will look into it.
We have a last question from Abhijit from Sharekhan.
What is the volume guidance from the oil and gas consumables to [ your fees ]?
This year we have [ solved for ] oil and gas which we talk about the [ the style is distillate ]. And we have targeted to be 22.75 million tons of oil. And with respect to gas, we targeted 3.1 million, so that makes total 25.93. And in terms of gas [ in the spectrum ], 4.41 million cubic meters in terms ONGC stand-alone. Generally 1.1, that makes 25.51 million for the whole year.
Can you just repeat the oil numbers?
For oil, [ the numbers are as ] I said 22.75 million tons, that is the stand-alone ONGC. Joint venture 3.1 million, that reach 25.93 million the total.
At this time, there are no further questions in the queue. I would now like to hand the floor over to Mr. Subhash Kumar for final remarks. Thank you, and over to you, sir.
Ma'am, thanks a lot for having organized this conference, and I thank everybody for the conference. And if they have -- we have probably been able to answer most of the queries. But if there are some additional questions also, I would request everybody to forward them to Mr. Prakash Joshi and Mr. Bansal and our IR team or you can directly get in touch with me and get the details. So once again, we thank you and thank everybody there on the call, including my colleagues who are there and who are putting all the efforts to make this call happen. So thank you very much, and I will be back. Thank you.
Thank you.
Thank you very much for attending the session. Thank you, participants, for joining in. That does conclude our conference call for today. You may all disconnect now. Thank you, and have a pleasant day.