Oil and Natural Gas Corporation Ltd

NSE:ONGC

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, everyone. I'm Harpreet Kapur, the moderator of this call. Thank you for standing by, and welcome to the Second Quarter Financial Year 2021 Earnings Conference Call of ONGC Limited. [Operator Instructions] I'd like to hand over the proceedings to Mr. Subhash Kumar, Director, Finance, ONGC. Over to you, sir.

[Subhash Kumar, Director of Finance & Director]

Good morning, ladies and gentlemen. I'm Subhash Kumar, Director of Finance of ONGC. And on behalf of ONGC, I welcome you all in this ONGC earnings call for Q2 and H1 FY '21. Thank you all for joining us on the call. I'm joined here by my colleagues, Mr. Anupam Agarwal, Chief Corporate Finance; [ Mr. Rajeev Kumar ], Chief Corporate Accounts and Financial Reporting Services; [ Mr. Vinod Harlan ], [ GM ] Finance; Mr. Rajarshi Gupta from Corporate Planning and Strategy; Mr. Sanjay Bharti from Corporate Accounts; [ Mr. Chaturvedi ], Chief Commercial; Mr. Nirmal Kumar and Mr. Chandra Shekhar from ONGC Videsh; and Mr. Prakash Joshi from Investor Relations side. ONGC has compiled its financial results for the quarter and half year ended September 30, 2020, which have been reviewed by the statutory auditors. These financial results have already been released on the 13th of November 2020 through the press note and sent to the stock exchange. These have been sent to the analysts who are there on our mailing list with a brief synopsis of the results. The company has earned a net profit, that is profit after tax of INR 2,878 crores during the second quarter FY '21 as against INR 6,336 crores during the second quarter of FY '20. This is a decrease of INR 3,458 crores. And in percentage terms, this decrease is about 55%. However, there has been a substantial increase in profit after tax in Q2 FY '21, that's an increase of INR 2,382 crores. That is increase of in terms of percentage, 480% vis-à-vis Q1 FY '21, mainly due to higher sales revenue and other income during the second quarter vis-à-vis first quarter of this fiscal. The profit after tax for H1 FY '21 has decreased by INR 8,942 crores, that's a reduction of around 73% from the profit after tax of INR 12,316 crores in H1 FY '20 to INR 3,374 crores in H1 FY '21. The decrease in net profit during the current quarter and H1 '21 as compared to the corresponding profit of previous years is on account of lower sales revenue, mainly due to lower crude prices and lower gas prices as well and the lower other income. The sales revenue for Q2 FY '21 has decreased by INR 7,537 crore, that's a reduction of 31% at INR 16,846 crore as against INR 24,383 crore in the corresponding quarter of the previous year. The sales revenue in the current quarter has decreased mainly on account of lower sales revenue from crude oil by INR 5,508 crore, natural gas revenue by INR 1,959 crore and lower sales revenue from value-added products by INR 345 crore. There is a reduction in Government of India's share of profit petroleum that decreased INR 275 crores from INR 565 crore in Q2 FY '20 to INR 290 crores in FY '21. The decrease is mainly at CB/OS-2 block [ amounting ] to INR 211 crore. Similarly, sales revenue in H1 FY '21 has also decreased by INR 21,058 crore, that's a reduction of 41% from INR 50,839 crore in H1 FY [ '20 ] to INR 29,781 crore in H1 FY '21. The sales revenue in the current half year has been lower, mainly on account of decrease in sales revenue from crude oil and natural gas, as to the extent of INR 15,324 crore for oil and INR 4,179 crore for gas, respectively. Sales revenue from value-added products during the current half year period has been lower by INR 2,041 crore. Also, there is a reduction in Government of India's share of petroleum -- profit petroleum by INR 436 crore from INR 93 crores in H1 FY '20 to INR 462 crores in H1 FY '21. The decrease is mainly at RJ-ON-90/1 and CB/OS-2 blocks by INR 196 crores and INR 187 crores, respectively. The billing net of VAT and CST for crude during the second quarter of the current fiscal was at INR 41.38 barrel -- per barrel as against USD 60.33 per barrel in the same period of the last year, that's a decrease of USD 18.95 per barrel. That's, in percentage terms, this is around 31% reduction. The average exchange rate of rupee, however, stood at INR 74.39 vis-à-vis INR 70.34 in the corresponding -- in the second quarter of FY '20. Thus, realization for crude oil in rupee terms stood at INR 3,078 per barrel in Q2 FY '21 vis-à-vis INR 4,244 per barrel in Q2 of previous fiscal, which amounted to a decrease of around 28% in INR terms. Similarly, billing net of VAT and CST for crude during the first fiscal -- first half of the current fiscal was at USD 34.97 per barrel as against USD 63.26 per barrel in the same period of the last year. That's a decrease of USD 28.29 per barrel, and in percentage terms, this decrease translates to about 45%. The average exchange rate of rupee versus dollar stood at INR 75.07 vis-à-vis INR 69.96 in the first half of previous fiscal. Thus, realization for crude in rupee terms stood at INR 2,625 per barrel in H1 '21 vis-à-vis INR 4,426 per barrel in H1 FY '20, which amounted to a decrease of 14.7% in INR terms. During Q2 FY 2021, the statutory levies stood at INR 3,936 crores as compared to INR 5,861 crores in Q2 FY '20. That's a decrease of INR 1,925 crore, and this is a reduction of around 33%. The decrease in royalty on crude oil [indiscernible] and cess by INR 876 crore is mainly attributable to decrease in [indiscernible] price of crude oil from INR 31,718 crore per MT in Q2 FY '20 to INR 22,988 per MT in Q2 FY '21. Similarly, there has been a decrease in the royalty on natural gas by a decrease of INR 206 crores on account of decrease in price of natural gas from INR 10,760 per 1,000 cubic meters in Q2 FY '20 to INR 7,273 per 1,000 cubic meters in Q2 FY '20. Statutory levies have also decreased by INR 5,180 crore. That is a reduction of 43% from INR 12,097 crores in H1 2020 to INR 6,917 crore in H1 '21. The decrease in royalties on crude oil by INR 2,365 crores and cess by INR 2,430 crore is mainly attributable to decrease in average selling price of crude oil from INR 33,102 per metric ton in H1 FY '20 to INR 19,650 per metric ton in H1 of this fiscal. Similarly, there has been a decrease in royalty on natural gas by INR 456 crore on account of decrease in price of natural gas from INR 10,646 per 1,000 cubic meters in H1 of previous fiscal to INR 7,254 per 1,000 cubic meter in H1 of this fiscal. The operating expenditure has decreased by INR 394 crores. That's a reduction of 8% from INR 4,922 crore in Q1 -- Q2 of previous fiscal to INR 4,528 crore in Q2 of this fiscal. The decrease in this year, Q2, is mainly on account of decrease in consumption of materials, INR 154 crore, mainly at Dahej plant by INR 113 crore on account of decrease in price of spot LNG, repair and maintenance INR 129 crore, particularly and mainly at Mumbai Offshore and water injection by INR 92 crore. Similarly, the operating expenditure in H1 of this fiscal has also decreased by INR 1,021 crore. The reduction in H1 FY '21 is mainly on account of decrease in [ consumption ] of materials INR 397 crores, mainly at the Dahej plant by INR 324 crore on account of decrease in average quarter LNG price, repair and maintenance INR 230 crores, work over and water injection by INR 144 crores and manpower expenses by INR 127 crores due to major [ renovation ] separation in the last 1.5 years and decrease in other staff-related expenses. The finance cost has also decreased by a substantial amount by around -- that is by INR 365 crores from INR 682 crore in Q2 of previous fiscal to INR 317 crore in Q2 of this fiscal. Similarly, the finance cost had decreased by INR 519 crore from INR 1,328 crores in H1 of previous fiscal to INR 809 crore in at H1 of this fiscal. This decrease is mainly on account of decrease in short-term loans and commercial paper borrowings. DD&I cost of Q2 FY '21 stood at INR 3,679 crore as against INR 4,578 crore in Q2 of previous fiscal, a decrease of INR 899 crores and in percentage terms, that's 20%. The decrease in DD&I is mainly due to decrease in depletion by INR 297 crore and impairment by INR 665 crores. The decrease in depletion is mainly at Mumbai Offshore by INR 305 crore due to upgradation of reserves. This decrease has been partially offset by increase in depletion by INR 118 crore due to downgradation of reserves at Assam asset and few other onshore fields. There was a reversal of impairment on account of write-off of few wells in the frontier basin. Similarly, there is also a decrease of INR 814 crore, that is around 9.8% in DD&I cost during H1 FY '21 from INR 8,316 crore in H1 '20 to INR 7,502 crore in H1 '21. The decrease in H1 FY '21 is mainly attributable to decrease in depletion by INR 642 crore and impairment by INR 318 crore. The decrease in depletion is mainly at Mumbai Offshore by INR 787 crore due to upgradation of reserves. The decrease has been partially offset by increase in depletion by INR 250 crores due to downgradation of reserves at Assam assets and other onshore. Considering the possible effects of low crude oil and natural gas prices and impairment assessment has been made in terms of Ind AS 36. Based on the assessment, the company has recorded an impairment loss of INR 1,238 crore for the quarter and the half year ended the 30th of September 2020 and has disclosed the same as an exceptional item. There is a decrease of INR 152 crores. That is 9.5% in exploration costs written-off survey and unsuccessful well cost in Q2 FY '21. That is INR 1,598 crore in Q2 FY '20 to INR 1,446 crores in Q2 of this fiscal. Similarly, during the half -- the first half of this fiscal, there is also a decrease in exploration cost written-off survey under unsuccessful wells by INR 1,355 crore, that is a reduction of 34.5% from INR 3,928 crore in H1 of previous fiscal to INR 2,573 crore in H1 of this fiscal. There's an increase in exchange gain by INR 783 crore from an exchange loss of to INR 371 crores in Q2 of this previous fiscal to exchange gain of INR 417 crore in Q2 of this fiscal. So -- I mean, the INR 783 crores is a total of INR 371 crores plus INR 412 crores. Similarly, there's an increase in exchange gain by INR 756 crore from an exchange loss of INR 338 crore in H1 of previous fiscal to exchange gain of INR 418 crore in H1 of this fiscal. The company at consolidated level has earned a net profit of -- that is profit after tax of INR 5,801 crores during the second quarter of FY '21 as against INR 5,560 crores during the second quarter of FY '20. That's an increase of INR 241 crore and in percentage terms, it translates to an increase of 4.3%. I must add that in these very difficult times for oil and gas industry, both upstream and midstream and downstream, I think the benefits of integration for the group have already paid off. And as a demonstration of that can be looked into -- these figures need to be looked at as a demonstration of that. This increase can be mainly attributable to our subsidiaries, which have performed better, including HPCL, MRPL and OVL. Similarly, the company at a consolidated level has earned a net profit, that is profit after tax of INR 6,891 crore during first half of this fiscal as against INR 12,680 crores during H1 of previous fiscal. That's a decrease of INR 5,969 crore and in percentage terms, 46 -- it amounts to 46%. This decrease is mainly due to lower contribution to the group profit, mainly by ONGC and OVL. So upstream, as a matter of fact, has been affected disproportionately due to this pandemic. Well, friends, with this, I finish my briefing of the second quarter results of financial year 2021. We'll be very happy to take questions from you. We would request you to restrict your queries on financial results only. I may add as well that as we are living through the pandemic, please take care and stay safe. Thank you very much.

[Operator]

[Operator Instructions] First question of [ comes ] from Sabri Hazarika from Emkay Global.

[Sabri Hazarika, Senior Research Analyst]

I have got three questions. The first one is relating to the status of KG 98/2. So we knew that it would be taking something like 6, 7 months for testing. So what is the current status? And what is the current level of production from the block?

[Subhash Kumar, Director of Finance & Director]

Yes. Go ahead. You could tell your three questions.

[Sabri Hazarika, Senior Research Analyst]

Okay. And the second -- yes. The second question is relating to the panel that the ministry has formed regarding APM gas pricing reforms. So any update you can give regarding that? And third question is your thoughts on now that OMPL-MRPL merger is almost on the way, your thoughts on HPCL and MRPL merger and overall consolidation of the downstream business going forward for ONGC?

[Subhash Kumar, Director of Finance & Director]

So let me take in reverse order. And my friends, Mr. Gupta, will reply on KG 98/2. So as far as OMPL-MRPL is concerned, both our Boards, that is MRPL Board and the ONGC Board have already approved it. Required submissions to stock exchanges in this regard have already been filed, so it's a public knowledge. As you would recall during the AGM, our Chairman had indicated that this also clears the deck for larger integration, which means that eventual integration of HPCL with MRPL. And in fact, pending the structural integration, actually, already actions are in hand. And very active interaction is happening between MRPL and HPCL. So that even with the constraints of structural perimeters, both the entities work as a cohesive group, and the synergy of almost 1:1 relationship between refining and marketing is achieved. Benefits of that are starting to be seen. And 2 companies are bidding together in bulk business. And in a couple of spaces, they have won it. Coming to your second question, as far as APM pricing is concerned, we also are aware that the committee to this effect has been formed. And the report of that committee, I understand, is in making. So it will be difficult to share beyond that. But what you can see that with the kind of pain the upstream has gone through, it is quite likely that the upstream companies can look forward to a pricing mechanism, which compensates them for the cost in the minimum and allows them also to capture the upside from the higher prices in market. Now what shape and when these things will come, it's very difficult to guess at this stage, and I may not be able to share more than this. As far as KG 98/2 is concerned, while my colleague will supplement, these are the projects, which is affected adversely by the disruption, which has happened in international supply chains. Given the plant status, it is very difficult to say justly pinpointing the date on which it will start giving you a full production. Now I'll ask Mr. Rajarshi Gupta or his colleague to supplement on this, if there are some [ strategic expansions ].

[Rajarshi Gupta, Chief Manager of Logistics]

This is Rajarshi. Thank you, sir, and very correctly said, sir. What happened when the pandemic broke out, we immediately saw the disruption of the global supply chain, and 98/2 involves international vendors, international exports working on the field. So the international global supply chain was disrupted, force majeure was invoked by the vendors. And as a result, work got suspended for some time. Now as the unlock started happening, we are discussing with the vendors in a collaborative mode how to expedite this, but we do believe there will be some delays. And first gas from 1 well initial testing, we have started on March 5, but that we have suspended because of low offtake and off-takers are not taking it. But the full scale, first gas and first oil, we do believe will come in FY '22, FY '23 oil and -- first gas and then oil. But the exact dates, as was mentioned, we are still working with the vendors. And as things normalize, we'll try to expedite it and bring it online at the earliest.

[Sabri Hazarika, Senior Research Analyst]

Okay. So just a follow-up on 2 of them. So you said you maintained production guidance from that asset, right, around 15, 16 MMSCMD of gas and close to like 60,000 barrels of oil per day. And what would be a realistic estimate of like hitting that kind of a plateau uptick? I mean 1 year, 2 year, anything on that, sir?

[Subhash Kumar, Director of Finance & Director]

So if I may chip in, as far as the production capacity and the peaks, there is no change. Only the time lines may shift a little bit from here to there.

[Sabri Hazarika, Senior Research Analyst]

Okay. So any realistic time line for hitting this plateau?

[Subhash Kumar, Director of Finance & Director]

We will not like to [ hazard ] that at this stage, we are in discussion and the exact time lines, we would know. Because guessing today and then being -- we would rather like to do it after we have informed discussion with the counterparties. It will be smaller. I mean now that the international supply chain is in place now, virtually restored, the only unfortunate invisible is that if so-called second, third or fourth wave, how does it affect further? Hopefully, things have changed materially over the last 10 to 15 days with so many vaccines suggesting very successful track record. So relying on that, I think it should be sooner than later.

[Sabri Hazarika, Senior Research Analyst]

Right, sir. And on the OMPL, MRPL, HPCL merger. So you said that HPCL and MRPL has been already they are like working together in terms of sourcing and other things. So we already are -- even including OMPL for that matter, so we are already seeing synergies between the 3 parties, right? Or is there something more to be gained after the official integration of this company?

[Subhash Kumar, Director of Finance & Director]

I'm sure you know it. Having legal structures also put their own constraints. When the entities are different, there are a lot of, let's say, leakages in the process. Other than those, efforts are being made. While sourcing is -- so just to correct you, it's not being done together as of today. But a lot of input is going through back and forth as far as what products to produce, what is going to be the product mix during a particular month or quarter. So a lot of coordination at ground level is happening. And MRPL is trying its level best to meet the requirements of HPCL and so is HPCL trying to accommodate the product slate of HPCL. As far as OMPL is concerned, OMPL and MRPL. OMPL is in [indiscernible] and MRPL is out of [indiscernible]. There are certain inefficiencies because of that structure. So other than that, both the companies were more or less operating on -- through close interaction. And hopefully, that process of integration will improve further once we actually the fall on this structural reorganization is also already taken.

[Sabri Hazarika, Senior Research Analyst]

So it will be a complete merger or it will be 100%-owned subsidiary, OMPL for MRPL?

[Subhash Kumar, Director of Finance & Director]

It will be a merger.

[Sabri Hazarika, Senior Research Analyst]

It will be a merger? It's a complete merger?

[Subhash Kumar, Director of Finance & Director]

It's in stages, actually. So it will take some time, but it will be a merger.

[Operator]

Next, we have Nafeesa Gupta from Bank of America Securities.

[Nafeesa Gupta, Research Analyst]

Sir, firstly, I just wanted to know your CapEx guidance for the year and next year and also 1H spend.

[Subhash Kumar, Director of Finance & Director]

So actually, when we started the year, we had anticipated our CapEx to be of the order of around INR 32,500 crores. When pandemic came, we had a review as to what was realistically possible at that stage, and I'm talking of April-May time lines. We thought that CapEx would be of the order of around INR 26,000 crores or so. Now that situation has improved, we believe that we will be higher than INR 26,000 crores and closer to the initial estimate of around INR 32,000 crores for this year. So it could be somewhere around INR 29,000 crores to INR 32,000 crores, maybe INR 30,000 crores or INR 32,000 crores, that's what is a likely figure for the current year. As far as the next year is concerned, we are in process of recasting the figures. And within a month or so, we would have the recast estimates. Prior to the pandemic, we had anticipated our CapEx to be of the order of around INR 32,000 crores to INR 33,000 crores only. But post-COVID, we will take a review, and hopefully, in another 15 to 20 days, we would be clear about the exact figures with which we'll be going for the year '21, '22.

[Nafeesa Gupta, Research Analyst]

Noted. And sir, the second question is on OVL acquiring 13.7% in Senegal offshore field. Sir, any time lines? And what kind of potential are we seeing from that?

[Subhash Kumar, Director of Finance & Director]

So I'm sure my colleagues from OVL also are there on the call. We would have fracked the field. And one of the fields, the -- in which future phases of the projects are being undertaken, has been declared as discovery of the year by Wood Mackenzie. So it's a great asset. And as a group, we are very proud and happy to go into this. We do anticipate that it's a question of documentation and all, which will take place. So my colleagues from OVL are there if they want to add anything to this, they may. Nirmal, if you want to add anything?

[Nirmal Kumar, Assistant Executive Engineer]

Just that the time line that we are aiming at presently would be somewhere to close the deal by end of January, if all goes well. Was it audible, sir?

[Subhash Kumar, Director of Finance & Director]

At least I could hear. I don't know whether the others also heard.

[Operator]

Is this question done, sir?

[Nafeesa Gupta, Research Analyst]

Yes. It was answered.

[Operator]

Okay, fine. So next question we have from S. Ramesh from Nirmal Bang.

[S. Ramesh, Chairman]

So on KG 98/2, can you share with us what is the latest updated capital cost and the breakeven gas price you require on your peak production?

[Subhash Kumar, Director of Finance & Director]

See, the KG 98/2, we shared about the project progress and time lines a little while ago. I'm sure you would have heard that. The pandemic has thrown the schedule a bit out of gear, and we are trying to ascertain exactly when we can start it. As far as production potential and capacity is concerned, we continue to maintain the same level as we have done previously. Breakeven cost, I don't have readily available with me as at present, but it is -- it cannot be materially different from where we started and since the project is likely to be completed at a lesser cost than what was anticipated at the time of approval.

[S. Ramesh, Chairman]

So what is the updated capital cost?

[Subhash Kumar, Director of Finance & Director]

Rajarshi, do we have an immediate basis of the cost available?

[Rajarshi Gupta, Chief Manager of Logistics]

I guess, sir, I'd just like to add 2 points. So we are below our sanction and estimated cost as we are going into 98/2 at this stage. Our Board has sanctioned, and we are below that. And on the price, as you say, that we had done a tender last December for a small quantity of gas from our first well. And because this is marketing and pricing freedom, we got very good bid. So we are confident that once the [indiscernible] starts, we can tender it out and we will get good enough rates to break even. The breakeven part, I would not like to discuss at this moment. But to your point, yes, we are within our capital cost, and we have the freedom to market this gas at the right place.

[Subhash Kumar, Director of Finance & Director]

And we had a significant gain as far as CapEx is concerned.

[S. Ramesh, Chairman]

Okay. Now coming to your first half results and the outlook, say, for this quarter and next quarter, you've generated a lot of cash, about INR 10,000 crores. And that $40, your results are reasonably good, although it's down Y-o-Y. So even if the gas prices are not revised, can we expect the current quarter in the second half to be better than the second quarter results? And going forward, if there is an improvement in oil prices, would we see the earnings going back to near pre-COVID levels?

[Subhash Kumar, Director of Finance & Director]

See, [ abide ], we will not like to sound very futuristic. Fact of the matter is, by all accounts, worst is behind us. We got something like $28 to $29 in the first quarter, but around $41 in second quarter and average of $34. So things can only look better from here. As far as physical performance is concerned, given the fact that all our operations are in open areas and where threats of pandemic like the situation are far more than some of the other operations, we have done -- [ I mean ] the [ divisions ] have done tremendously well. I must acknowledge the significant efforts put in by our workforce, our colleagues in the field, actually, who have seen to it that we maintain the production level, where we had anticipated it to be. There was some hit in gas, but it was less to do with our ability to deliver, more to do with the build gas capacity to offset. So from that perspective, it is attributed to the tremendous contribution of all ONGCians. As far as cash is concerned, I think pandemic is teaching all and in the process has taught us also. As you rightly captured, we have conserved around INR 10,000 crores or so. We do anticipate the things to get better. And in the second or third quarter onwards -- or second half, actually, we believe the performance will improve considerably.

[S. Ramesh, Chairman]

Just one last thought. What is the reason for the reduction in the exploratory well costs coming down? Is it because of the overall cost of equipment coming down? Or is there a reduction in the drilling activity? And how do you see the pace of drilling activity going forward?

[Subhash Kumar, Director of Finance & Director]

So one is the cost had come down. That is for certain. The kind of contracts we did in end 2019 or early 2020, they were at a significantly reduced level. As far as activity is concerned, there has been a bit of a reduction in activity also, which we are already trying to catch up. So a large part of it will have to do with the reduced costs. Actually, there has been reduction not only in this front, there has been reduction on operating expenses, et cetera, also. So -- which have come down by around 10% to 11%, which is very, very significant, considering the kind of squeeze you feel because of the lower realization for the products.

[Operator]

[Operator Instructions] Next, we have Rohit Ahuja from BOB Capital.

[Rohit Ahuja, Analyst]

Sir, I had 2 sets of questions. First is on the kind of current gas prices that you're realizing across assets. We know APM prices reduced 120% in October. But you also mentioned that KG 98/2 productions are track free pricing and that would be through tender basis. So if -- at the current stage, if you were to get market-linked prices, what sort of prices would you get? And how different it would be compared to the '18 prices? And second question is regard to OVL. Have you seen the share of profitable equity in that number that is just below our revenue line already as drastically from last year in H1 FY '21? So can you explain that reduction in that cost?

[Subhash Kumar, Director of Finance & Director]

Rohit, I did not get your question about OVL.

[Rohit Ahuja, Analyst]

So OVL, the financials that you gave us in your release, the second line is share of profit of equity in your assets and that quantum has come off to INR 117 crores in the H1 this year compared to INR 547 crore last year. So you could explain the sharp reduction in that?

[Subhash Kumar, Director of Finance & Director]

Okay. So taking the first one first, I -- the current -- you know the gas pricing formula, Rohit, very well. And a couple of hubs which are surplus hubs in terms of gas prices are factored in for the purpose of arising -- arriving at the gas prices. Consequently, the gas prices from 1st of October are terribly depressed and much -- will lower the cost. There is no secret about it. What kind of prices one would get? Now that's a tricky one. You would -- the people on the other side of call would know it could be well or if not better. But the reality remains this country today consumes gas and 53% of it is LNG. If that is the scenario, I'm sure the industry and the consumers should look at that as a relevant reference when it comes to what kind of prices one would get for its [indiscernible].

[Rohit Ahuja, Analyst]

would it be closer to spot LNG price or long-term LNG price? If you were to [indiscernible] in the market right now, ex quantity of cash, would it be closer to spot LNG price that you'll get or the last gas price?

[Subhash Kumar, Director of Finance & Director]

I mean let's also look at that. If you look at spot LNG prices also, so that would work out to somewhere around 6 ungasified, and delivered price would be in the range of [ INR 7, INR 7 50 ] or so in the minimum. Yes. Spot prices have a problem because in September, they were below [ INR 3 ]. And today -- I've not seen it today, but they are already more than 100% increase since then. So I don't think that spot prices are the relevant reference. Relevant reference would remain something like Qatar price as you very rightly said, which is a long-term and for a very, very substantial quantity. So that can be seen as a reference. Now whether you get exactly that or you get a premium for domestic gas or a higher level of assurance that -- or some sort of discount, that's a question which market decides. But that is the right reference.

[Rohit Ahuja, Analyst]

And that is what, apparently, it's been proposed for new APM price also, the formula that it should be linked to something similar formula like Qatar?

[Subhash Kumar, Director of Finance & Director]

No. I can't say anything, Rohit. Actually, what is proposed and what comes out will -- only time will tell. But I think this is the right reference one can take on a long-term basis. Now whether somebody will be able to do it on an immediate basis or not is a very difficult thing to say. That's premature to anticipate. But I mean these are the same molecules. So why they should have a different price? Now intermediate, whether one jumps to that kind of situation in one go or it is a phased kind of movement, very difficult. It's for the authorities to take the call.

[Rohit Ahuja, Analyst]

So just linked to that question, if you were to get a $5 price for all your incremental production, would it be profitable enough for you to continue investing and increase production from your assets? Or you would wait for a better price?

[Subhash Kumar, Director of Finance & Director]

The incremental raise the question of getting only for incremental. The incremental part that's already there is a free pricing. So it's a question of nomination field what price you got. Because it's not only a question of return on incremental returns one makes on entire portfolio, including the nomination gas. So a succession would be to get a better price on nomination gas, which gives us ability to invest. As far as the marginal or new gas is concerned, that in any case, it's free pricing. So there is no issue.

[Rohit Ahuja, Analyst]

There, you don't have any concerns from the -- a new product?

[Subhash Kumar, Director of Finance & Director]

See, there, you don't have -- and we are in this industry. So that's a business risk when prices come down internationally, that's a business risk you take. And any company in the business will have to accept that part of the risk. And we are well geared to [ reach ] that. That's not an issue. We can easily withstand the volatility and as has been demonstrated by ultra-low prices in first quarter. As far as OVL is concerned, I'll leave it for my colleagues to answer. But largely, it has to do with lower realizations and the relevant fees. [indiscernible] like to add something?

[Nirmal Kumar, Assistant Executive Engineer]

Yes, sir, this is Nirmal here. And as you rightly said, it has to lower realization. Basically, a major contributor to the share of profit or equity accounted investing comes from [indiscernible]. And that is majorly an oilfield, and oil prices have directly impacted it. So on a year-on-year basis between the 2 half years, [ GST bank ] or net profit has dipped around close to INR 500 crores to a little less than INR 150 crores in this half year. And that is the major reason for the difference that you're seeing in the contribution of these accounted investments.

[Operator]

Next, we have Pinakin Parekh from JPMorgan.

[Pinakin M. Parekh, Associate]

Sir, my first question is, if you look at ONGC stand-alone interest cost, they stand at nearly 11 to 12 quarter lows. Now when it comes to the debt payment of regarding the HPCL stake purchase, sir, where are we? And how will the interest cost trend from here? And my second question is, sir, when we take the broader picture of the HPCL-MRPL merger or potential merger, are there any legal issues, challenges, regulatory issues, which would preclude an outright merger of those 2 entities, and we'll have to live with integration only in terms of operation?

[Subhash Kumar, Director of Finance & Director]

No. So I take the second one first. I don't believe there are any obstacles, legal challenges of the order which are insurmountable. There are certain formalities to be completed, which can be done easily. I don't think there is any issue on that part. As regards the financing cost, I'll request my Chief Commercial to chip in. But what we have done during the period, let me tell you that we have gone in quite imaginatively to source funds from the sources, which are actually very cost effective. And we have also raised as low as 3 -- less than 3.20% cost also through commercial papers. Now those were kinds of things. CP was something which we had never tried in the history, but difficult times speak to you a lot. So we have started utilizing all possible options. And slowly and slowly, as my colleague could also share that we are attending to convert all of our borrowings, which were of short-term natures into relatively medium to long term. So that a little bit of balance is also restored at ONGC level. Actually, we were relying heavily on short-term instruments for purpose of funding our [ cap ]. So Mr. Chaturvedi, if you would like to add?

[Unknown Executive]

Yes. I think -- thank you very much. I think we have sufficiently explained this phenomena. What is happening is that the interest rates have been staying low. And a majority part of our short-term funding has been by way of FCNR HPCL funding, [which are building ] the LIBOR. So we end up paying around 1% or so. So that actually results in a much lower interest costs. And as again, you correctly pointed out, in terms of the outlook, we have been trying to move part of our portfolio from short-term to long-term. In fact, we have already raised some money. And so that combined effort will finally show in terms of the direction of the interest cost, but they remain quite [ mixed ].

[Subhash Kumar, Director of Finance & Director]

And also, let me tell you that our improvement on these credentials is not only at a stand-alone basis. Actually, even at consolidated basis, we have been able to bring down debt-to-equity ratios by 5 percentage points from 0.51% to 0.46%, so within a matter of 6 months. So there has been all-round improvement across the group.

[Operator]

Next, we have [ Amit Duswari ] from UBS Group.

[Unknown Analyst]

Sir, first of all, thanks for considering the request of the shareholders and getting one of your subsidiaries for the buyback as well as positive direction on OMPL transaction with MRPL. Sir, given that now if there is a cash flow improvement going forward, would you consider a similar step for ONGC shareholders as well and look for buyback given the stock price is extremely low and market cap is quite lower?

[Subhash Kumar, Director of Finance & Director]

Amit, thanks for acknowledging the efforts of ONGC Group's management. I give the credit for buyback to the HPCL management, all the inputs including from ONGC. I'm sure it's a reassertion from the company as well as the promoters that the company's current share price is considerably lower than the level at which it deserves to be. We are actually making significant strides in terms of reorganizing the group OMPL, MRPL, HPCL, PMHBL, OPaL, everything is in state of transition and interest rate of transition for the better, that I can assure you. We are addressing the structural issues across the group. You raised another question as to improve the liquidity or improve the financial position, what does it mean to shareholders? I think a strong group, actually, is an assurance to the stakeholders, including the shareholders about the sustenance as well as its capacity to keep on paying on a long-term basis. That could be in terms of anything. I can't commit immediately as to what will be the form. But obviously, one day or the other, the stakeholders get rewarded as the time goes. So definitely, a revitalized group actually means much better capacity to service these stakeholders.

[Unknown Analyst]

Okay. And sir, my second question relates to the gas price hike. So I understand that a committee has been formed. But do you think that the progress on this matter has been considerably slow, slower than expected, while the importance of this matter is quite high? So what's the reason that government has been talking about gas-based economy, but we have not been able to sufficiently reward the offshore companies which are engaged in the production of gas? So why there has been so much disconnect in the policy making? Like we have not seen any positive steps to like natural gas and the GST or any other steps? So why there is so much disconnect for the upstream guys versus the downstream guys?

[Subhash Kumar, Director of Finance & Director]

So I don't see the disconnect. You have talked about also of delay. I think it's a question of perception. While the situation is challenging for upstream and [Audio Gap] But at the same time, I believe -- and I can't speak for the government, but I think government has to balance so many things. We have received the tremendous support from Ministry of Petroleum and Natural Gas when it comes to the vision of prices or issue of inclusion gas in GST. In fact, on a couple of questions in the past, we have believed that it is around the corner. Hopefully, it is the right time actually that this ATF and GST should be included in -- the ATF and gas should be included in GST in the minimum, if not all the 5 products. So -- and the ministry is [ ceased ] of the matter. I believe they must be working with the right authorities to get it done. It requires actually tremendous consensus within the country to actually make that happen. And the ministry seems to be working on that. Gas price...

[Unknown Analyst]

Would you put any time line? Time line for the gas price hike?

[Subhash Kumar, Director of Finance & Director]

I would -- I wish I knew. I wish I could. It is for them to do.

[Operator]

Next is Vikash Jain from CLSA.

[Vikash Kumar Jain, Research Analyst]

I had a question on OpEx. So firstly, what is the element of ForEx gain? And has that been adjusted with -- I mean, has that kind of gone down to reduce the reported OpEx number for this quarter?

[Subhash Kumar, Director of Finance & Director]

Can you repeat the question? What has been the element of?

[Vikash Kumar Jain, Research Analyst]

ForEx gain, sir?

[Subhash Kumar, Director of Finance & Director]

ForEx gain. So let me tell you, I mean, if I were to talk of a couple of elements. For example, staff expenditure, we are down by around 10%; work over operations, costs are down by around 5%. Water injection, et cetera, is down by more than 15%. [ Reduction ] of raw material, obviously, this is largely a function of what we consume in C2-C3 plant is down by 30%, and that's largely to do with international gas prices. Transport expenses down by 10%; insurance, a marginal increase. Repair and maintenance down by 25%, partly because of maybe lower activity as well as the lower contracted prices. Hiring charges, et cetera, are down by close to 10%. Other production expenditures -- actually a this -- hiring has gone up by around 10%. Other production expenditure is down by 12%. And CSR is up during the year because of what we ended up paying in the beginning of the year. There is a reduction in analytical [indiscernible] cost, et cetera and also the administrative overheads, et cetera. So this is what has translated into the reduction. Actually, most of the expenses are of [indiscernible] and they do not have a significant contribution from foreign exchange gain in this.

[Vikash Kumar Jain, Research Analyst]

Okay. Sir, the other question was on account of the CapEx numbers that you have -- kind of you're guiding for. Clearly, our free cash flow would not be good enough to kind of support that. I mean our operating cash flow will not be good enough to support that kind of CapEx. And to add to that, there is demand from the government to raise dividends. So how do we see balancing the 2 out? I mean in terms of -- is there any chance that dividends could be lower, particularly in a year like this, there'll be a big mismatch between your CapEx and your final profit numbers?

[Subhash Kumar, Director of Finance & Director]

No, we would love to pay higher dividends provided we earn. I mean if the prices recover and we make substantial money, we would love to share. But I think on the -- from the country perspective, softer oil and gas prices are good. Our -- whatever is the -- I mean, we are in a very tricky situation as a company because if oil prices stay low, it hurts us as a company. But as a country, this brings on the import [ will ] substantially. So I think we are the ones who can't even pray that the prices should be higher. Having said that, we are mindful and we would like to keep investing on the projects in case we do foresee the right prices for the products. Right now, these are at ultra-low level, but notwithstanding that, we are looking at our project pipeline to see what projects can be formulated and set in motion at this stage. Dividend, that has been a discussion over the last couple of years, and we'll see where we end up after the third quarter. And then the call will be taken with the full consultation with the relevant authorities, which involves all stakeholders. So at that time, the call will be taken.

[Vikash Kumar Jain, Research Analyst]

Sir, one other thing, Subhash Ji. This is regarding the merger that you just kind of hinted to that is possibly eventually merger of HPCL with MRPL. Now firstly, this buyback and then the merger. In case of MRPL, you own about 72% over there, which is much higher than what you own in HPCL. So if it's a pure merger, then your stake in HPCL goes up even further and because it'll be issued at HPCL shares. And then because of the buyback, your stake goes up even more. So is there a plan to eventually if prices don't recover to delist HPCL or something?

[Subhash Kumar, Director of Finance & Director]

No. We have not thought that long. The company has done well. Company, if you really look at compared to its peers also, HPCL has done a great job. Its first quarter results are fully impressive. And in fact, it is on account of the significant contribution of HPCL that our first half results are better than the results for the group on Q2 of -- H1 of previous fiscal. So there is no question or no thinking on delisting HPCL at this stage. As we go along, we'll start kind of formulating a clear strategy as to how to go about it, but the lines have been drawn in the sense of direction. In terms of time line, they will happen because, first, OMPL-MRPL has to happen, then one has to take a pause and then start discussing specifically on the other proposals. But direction is clear as to where we want to go.

[Operator]

Next, we have Vidyadhar Ginde, ICICI Securities.

[Vidyadhar Ginde, Oil and Gas Analyst]

My question on gas pricing. So you did mention earlier that the you are hopeful of a gas price, which is covering your cost. And so you are effectively, I guess, based on what you said in the past, looking at a gas pricing of over $3.7 per MMBtu, and you can be assured of getting a price which covers your cost only if there is a floor pricing, and that's what's been the news flow also. So are you expecting a floor price kind of a thing?

[Subhash Kumar, Director of Finance & Director]

No. Right now, actually, it is in -- I believe the committee is still to finalize this report. And such permutations and combinations are being heard about, I'm not very sure as to what eventually the committee recommends and then what eventually gets decided. But I do believe that if at the end of the day, the peer formula would be one, which compensates the upstream purely for the investments made historically and also gives them ability to generate funds to invest further. Because India does not have luxury of too much of oil and gas, so I think there is a necessity to build the capacity of domestic players, if one has to even attract the foreign investors. From that perspective, even for nomination gas, the right remunerated price makes sense, which does not necessarily only cover the cost but also give some upside.

[Vidyadhar Ginde, Oil and Gas Analyst]

And your cost is $3.7 MMBtu?

[Subhash Kumar, Director of Finance & Director]

Hello?

[Vidyadhar Ginde, Oil and Gas Analyst]

You're cost is $3.7 MMBtu?

[Subhash Kumar, Director of Finance & Director]

I missed part of it.

[Vidyadhar Ginde, Oil and Gas Analyst]

Pardon me?

[Subhash Kumar, Director of Finance & Director]

I missed part of it.

[Vidyadhar Ginde, Oil and Gas Analyst]

No, I'm asking you, your cost is $3.7 as you have stated in the past. So only if the price is above that, you start making some money?

[Subhash Kumar, Director of Finance & Director]

Yes.

[Vidyadhar Ginde, Oil and Gas Analyst]

So secondly, how much -- so I presume that you have the full support of your ministry. But I think the decision will depend on what are the highest levels there. Are you hopeful that at the highest level this is now likely to be more positively? Because I think you've been trying for a floor price for almost 4 years -- over 4 years now, I think, since your price went below 4.2. So are you hopeful? And is the fact that a committee has been set up, a positive indicator that some this -- even at the highest level, they are considering that the formula needs to change?

[Subhash Kumar, Director of Finance & Director]

So I think just to set a bit of correction. As far as we are concerned, we neither look for a cap nor flow. We expect the free pricing. So the company has never favored either of them because they are inconsistent with the eventual direction of reforms. We believe that free pricing is the right way to go. But there are several ways of reaching the end point. And one could be through a system, which actually strikes a balance between 2 extremes and give the floor and the cap. I'm sure you know this -- I mean, whole intention to move towards the gas-based economy comes out of commitment from the very, very top. So if that is the case, then Ministry has the right year. It's only a question of timing. And I believe Ministry has been supportive, and there, arguments this time are likely to [ cut ice ] because now we have touched probably the rock bottom prices.

[Vidyadhar Ginde, Oil and Gas Analyst]

So lastly, on this gas price, do you think that if there is movement change in formula, then will it come only from April? Or is there a possibility that a gas pricing formula could change even before the next time when the pricing is up for review and revision?

[Subhash Kumar, Director of Finance & Director]

There is an urgent requirement, do it on tomorrow basis. So I am not very sure when it comes.

[Vidyadhar Ginde, Oil and Gas Analyst]

Okay. But so it could come, though you're not sure?

[Subhash Kumar, Director of Finance & Director]

Yes. I hope [indiscernible].

[Vidyadhar Ginde, Oil and Gas Analyst]

Two small questions. One on [indiscernible], if we could share because I think the first half profit of INR 150 crores was shared. So I presume first quarter probably was a loss. What was the profit contribution of [indiscernible] in Q2, if we could have that number? And the other small question was on if you could give us some data on the financials and the operations of OPaL?

[Subhash Kumar, Director of Finance & Director]

Okay. So Nirmal, if you can talk about [indiscernible]?

[Nirmal Kumar, Assistant Executive Engineer]

Sir, presently, we don't have the exact Q2 numbers, we'll have to get back on this. H1, we have already mentioned the numbers. Q2 exact numbers, we don't have the number.

[Vidyadhar Ginde, Oil and Gas Analyst]

But is it likely to be higher than H1 number, Q2?

[Nirmal Kumar, Assistant Executive Engineer]

Q2 is definitely higher than both H1 and [indiscernible].

[Subhash Kumar, Director of Finance & Director]

I mean that being largely oil, actually, it has to be a [indiscernible]. As far as the pilot is concerned, OPaL has done tremendously better. Again, numbers maybe we'll share separately, may not be readily available. I don't know whether -- Prakash, do we have the numbers available?

[Prakash Joshi, Manager of Finance]

Yes, sir, for Q2 -- for H1, basically, the total income was INR 4,600 crore around and [ the earnings ]...

[Subhash Kumar, Director of Finance & Director]

Can you tell net position? Can you tell the net position of Q1 versus Q2?

[Prakash Joshi, Manager of Finance]

Yes. Yes, sir. At EBITDA level, at Q1, we were INR 121 crore. And at Q2, we were at INR 632 crore, sir.

[Subhash Kumar, Director of Finance & Director]

So actually, if you really look at EBITDA level, there is a considerable improvement. In fact, OPaL was one of the new plants, which continued operating even during the COVID. So it has turned out significantly better performance. The only issue at OPaL level remains its lopsided capital structure, which likely to be addressed in days to come.

[Prakash Joshi, Manager of Finance]

And sir, at that level, we were -- yes. At that level, we were only negative INR 65 crore in comparison to INR 641 crore in the first quarter.

[Vidyadhar Ginde, Oil and Gas Analyst]

First half or first quarter?

[Subhash Kumar, Director of Finance & Director]

INR 641 crores versus INR 65 crores in Q1, Q2.

[Prakash Joshi, Manager of Finance]

Q1, Q2, yes, sir.

[Subhash Kumar, Director of Finance & Director]

Actually, see, despite the disruption and a reasonably good tracks, it's nearly there now.

[Vidyadhar Ginde, Oil and Gas Analyst]

And sir, what was the utilization of OPaL? What is it operating at?

[Subhash Kumar, Director of Finance & Director]

I mean, today, it is operating at 100%. Actually, it started touching 100%, 102%, 105% from December. Now subsequent to that, there has been more or less disruptions or changes because of the COVID. So more or less, the plant is capable and has worked on sustained the basis at above 100% capacity for quite a few months during this period. We had planned that during the 9 months of this year, that is when we finalize the budget post -- from post July, it will operate at 105% capacity. By -- 105% on a 9 months basis may not be possible, but it will be close to 100% or so as far as these 9 months are there. It is already doing close to 100% these days.

[Operator]

Next, we have Varatharajan from Systematix.

[Varatharajan Sivasankaran]

Sir, on the impairment front, you had mentioned the number. Was it all gas or there are some oil also?

[Subhash Kumar, Director of Finance & Director]

So it was largely gas. Oil has improved. [indiscernible] is only gas. Sanjay, can you confirm this please?

[Unknown Executive]

Yes, sir, it is entirely for the -- on account of decrease in gas prices.

[Varatharajan Sivasankaran]

And secondly, on marginal fees, like what is the update, sir, in terms of monetization efforts?

[Subhash Kumar, Director of Finance & Director]

Can you really repeat your question? What exactly you want?

[Varatharajan Sivasankaran]

On the marginal fees, like, what is the effort to monetize any program on tendering?

[Subhash Kumar, Director of Finance & Director]

No. So the process was started, and there was some response -- exact numbers because we do not have the relevant theme here. But there was a response and the process of finalizing the contracts, et cetera, is going on. I mean as you are currently aware also that during this period, the prices have come down drastically. So maybe there is a little bit of reluctance on the parties to go ahead on an immediate basis.

[Operator]

So the next question we have from Bhavin Gandhi from B&K Securities.

[Bhavin Gandhi, Research Analyst]

Just two questions from my side. One is the restructuring that you alluded to within the group in that thing, do you believe HPCL will be the nodal company, which will have all the downstream assets? So the other downstream assets of the group can also be divested into HPCL at some point in time? Or that's not the case?

[Subhash Kumar, Director of Finance & Director]

So if you are adding something like we have PMHBL, we have OMPL, we have MRPL, I think it logically could eventually make a lot of sense to align them with HPCL.

[Bhavin Gandhi, Research Analyst]

I was referring to OPaL particularly.

[Subhash Kumar, Director of Finance & Director]

No. So as far as OPaL is concerned, if you really look at it, it is really different from our Dahej and -- from our Dahej, Hazira and Uran complex. Actually, virtually, there is 100% relationship between the feedstock coming from upstream and the end consumer. So they should have always been as part of ONGC. And eventually, I think that may be the way to go ahead. It has little or no relations with the HPCL directors.

[Bhavin Gandhi, Research Analyst]

Got it, sir. And sir, second, just a clarification. You mentioned the impairment is relating to gas only. So are we pensioning in the current gas pricing in our impairment charge, which means that if there is a reversal of [ pricing ]?

[Subhash Kumar, Director of Finance & Director]

Yes, yes, yes. They are already mandated. They [ apply persistence ], we do anticipate a revision, but we, as more conservative approach, we have adopted those prices for the purpose of [indiscernible].

[Operator]

The last question of today we have from [ Sumit Sarkar from Capital Mine ]. [Operator Instructions] So there's no response. I'll turn the floor back to Subhash for final remarks. Over to you, sir.

[Subhash Kumar, Director of Finance & Director]

Okay. So thank you very much. I think we greatly appreciate everybody for being there and discussing, I may reassure that anybody having any question at any time can ask and approach our team, approach me for the -- any clarification you want. I would only like to conclude by saying that we have been through some very difficult times. Difficult times have also taught us how to survive. And ONGC has, as a group, come out with flying colors during these times and demonstration of that is that our Q2 performance on a group basis is much better than the comparative performance of last year. So the economy worldwide and in India is reviving. So we are past the worst and hopefully, the things will be smoother on a going-forward basis. We greatly appreciate your questions, input, suggestions. And if there is anything, please get back to us. Thanks, madam, to you also for valuable time and for organizing this. And thanks to the entire -- I think through call, I once again acknowledge the significant contribution of our [ team ] in this very, very difficult time. They have actually put in tremendous effort. Some of them get noticed, some of them that are not noticed, yet they have silently ensured that our operations continue on unaffected. Thanks to the team, and thanks, Madam. Thank you very much.

[Operator]

Thank you so much, sir. I would like to thank all the speakers of the presentation, and I would like to thank all the participants for their valuable time. You have a great day. You may all disconnect now. Thank you.

[Subhash Kumar, Director of Finance & Director]

Thank you. Have a nice day. Thank you very much. Okay. Bye. Please have a good day.

[Operator]

Thank you very much.