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Oil and Natural Gas Corporation Ltd
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Good morning, ladies and gentlemen. I'm Belshea, moderator for the conference call. Welcome to ONGC's Q2 FY '23 Earnings Conference Call. We have with us today Mrs. Pomila Jaspal, director of Finance and our team who will interact with investors and analysts to discuss Q2 earnings. [Operator Instructions] Please note that this conference is recorded.
I would now like to hand over the floor to Madam Pomila Jaspal. Thank you, and over to you.
Good morning, ladies and gentlemen. Just to introduce, I am Pomila Jaspal, Director of Finance, ONGC. I welcome you all in this ONGC earnings call for quarter 2 and 6 months financial year '23. Thank you all for joining us on the call. I am joined here by my colleagues, Mr. Vivek Tongaonkar, our Chief Corporate Finance; and [indiscernible] [ Ramesh ], our Chief Accounts and Financial Reporting Services; Mr. Anil Kumar, our Chief Commercial; Mr. Pavan Aggarwal, our Chief Corporate Planning and Strategy; Mr. Sanjay Bharti from our corporate accounts team; Mr. Nirmal Kumar; and Mr. Chandra Shekhar from ONGC Videsh Limited; and Mr. Prakash Joshi from Investor Relations and Corporate Budget section.
You will be happy to note that ONGC has compiled its financial results for the quarter and 6 months ended 30th September 2022, which have been reviewed by the statutory auditors. The financial results have already been released on 14th of November 2022 through a press note and sent to the stock exchanges. This has also been sent to the analysts who are there on our mailing list.
Here is a brief synopsis of the results. The company has earned a net profit, that is profit after tax of INR 12,826 crores during the second quarter of financial year '22/'23 as against INR 18,348 crores during second quarter of financial year '21/ '22, a decrease of INR 5,522 crores, that is 30.1%. During quarter 2 financial year '21/'22, the company had decided to opt for lower tax regime under Section 115BAA of the Income Tax Act, 1961, with the effect from financial year 2021. Accordingly, the company has recognized provision for tax expenses and remeasured its net deferred tax liabilities. The impact due to availing the option has resulted in decrease in deferred tax by INR 8,541 crores in quarter 2 financial year '21/'22.
The profit after tax that is PAT for H1 for financial year '22, '23 has increased by INR 5,350 crores. That is 23.6% from profit after tax, PAT of INR 22,682 crores in financial year '22 to INR 28,032 crores in H1 financial year '23. The increase in net profit during H1 financial year '23 is on account of higher sales quantity mainly -- sorry, sorry, sorry, higher sales revenue that is mainly due to higher crude oil, natural gas and VAT price realizations, then higher other income that is interest and dividend income.
The sales revenue for quarter 2 financial year '23 and H1 financial year '22/'23 has increased by INR 13,908 crores. That is 57.3% and by INR 33,092 crores, that is 70.1% as against the corresponding quarter and H1 of the previous year.
The billing net of VAT and CST for crude during the second quarter in the current fiscal was at USD 95.49 per barrel as against USD 69.36 per barrel in the same period of last year. That is an increase of USD 26.13 per barrel. The exchange rate of rupee versus dollar stood at INR 79.81 vis-a-vis INR 74.09 Thus, realization for crude in rupee terms stood at INR 7,621 per barrel in quarter 2 financial year '23 vis-a-vis $5,139 per barrel in quarter 2 financial year '21/'22. That is an increase of INR 2,482 per barrel in INR terms.
Similarly, gross billing for crude during the first 6 months of the current fiscal was at USD 101.98 per barrel as against USD 67.45 per barrel in the same period of last year. That is an increase of USD 34.53 per barrel. The exchange rate of rupee versus dollar stood at INR 78.55 vis-a-vis INR 73.92. Thus, realization for crude in rupee terms stood at 8,011 barrel in H1 '23 vis-a-vis -- INR 4,986 per barrel in that is financial year '21/'22, which amounted to an increase of INR 3,025 per barrel, 60.7% in INR terms.
The expenditure on statutory leases that is royalty, sales and excise duties have increased during quarter 2 financial year '23 by INR 8,514 crores, that is INR 8,514 crores, 139.2% increase. And at H1 financial year '23 by INR 13,160 crores. That is 108.9% in comparison with similar period of previous year. This increase statutory leases attributable to increase in sales price of crude oil and natural gas and levy of special additional excise duty by government of India on production of petroleum crude at a rate revised on every fortnight based on international crude price.
This SAED on crude has been levied with effect from 1 July 2022, which amounted to INR 6,452 crores in quarter 2, financial year '22.
There is an increase of INR 2,022 crores in exploration cost written off in quarter 2 '22/'23 and INR 2,069 crores in H1 financial year '23 versus corresponding quarter and half year period of previous year. This increase is due to company charging off exploration wells amounting to INR 2,140 crores lying in the field falling under contact areas offered under DSF-III by the DGH and awarded to the winning results.
The operating expenditure has increased by INR 242 crores. That is 4.8% from INR 5,025 crores in quarter 2 '21/'22 to INR 5,267 crores in quarter 2 '22/'23. The increase is mainly on account of increase in the payers and maintenance by INR 156 crores, transportation expenses by INR 64 crores, mainly at mobile outflow due to an increase in activity and rates. Similarly, the operating expenditure in H1 that is '22/'23 has also increased by INR 838 crores from INR 9,823 crore in H1 '22 to INR 10,661 crores in H1 financial year '22/'23. The increase is mainly on account of the increase in workover operations. That is INR 131 crores.
Water injection at the rate of INR 161 crores due to increase in equities and repair and maintenance for INR 276 crores, mainly at Mumbai Offshore.
Depletion, depreciation and impairment costs for quarter 2 financial year '23 and H1 financial year '23 stood at INR 2,595 crores and INR 7,104 crores respectively, as INR 3,943 crores in quarter 2 financial year '22 and INR 8,108 crores during corresponding year of previous year. This decrease is due to reversal of impairment of INR 2,129 crores on certain discovered small fields of the company falling under 10 contact areas, which were awarded by DGH to the winning business.
With this, I finish my briefing of the second quarter results for financial year '22/'23. We will be very happy to take questions from you. We would request you to restrict your queries on financial results only. Thank you.
[Operator Instructions] The first question comes from Probal Sen from ICICI Securities.
Two questions. One was with respect to the windfall tax, is there any sense you get in terms of the minimum flow rate in mind of the government? Can we assume that the net realization that somewhere between $75 to $76 level is something that is targeted and therefore, irrespective of where crude is right now. That sort of the realization should be putting for the [indiscernible] near term?
Can we answer this? Probal Sen, this windfall -- your question regarding the windfall tax, regarding the flow rate and the rate under which conditions, so the government is leaving this tax although officially, they have not given any rate, but the discussions they have been, and that's what we have seen in the 7 revisions which have taken place till date starting from 1st July 2022, that they are keeping a floor rate of something around $75 to $76 per barrel. And they are not going lower than that. That is what I would like to say.
Secondly, again, on pricing, we have the [indiscernible] committee recommendations that can come at any time from what we understand. Any sense you can give us in terms of what kind of pricing they are looking at? And on the flip side for us, given how low pricing used to be until recently, is it fair to assume even if the prices stay at somewhere around, let's say, $6.5 to $7 that is something that is more than comfortable for us, at least for the legacy assets? Of course, the pricing for KG Basin assets will be different that will be based on the premium that's why we see that. So is that a fair way to look at it?
Yes. Mr. Probal, I think our relevant person who is going on addressing the meeting also. So he is right here, Mr. Anil Kumar. So he would like to give an answer to this.
Yes, on current [indiscernible] has translated the committee is it by economist [indiscernible]. And they have conducted. I think they have hold around 5 meetings. If you see the mandate of the committee, that say that the committee should suggest market-oriented pricing regime for India's long-term region for ensuring gas-based economy. So the mandate itself says that the price would be remunerative so that there has to be investment in the oil sector. And there should be growth in the oil sector or gas sector, particularly.
In the meeting, they have consulted all the stakeholder encouraging association like Fike, SHM and CII. And everybody is of the view that there should be marketing and pricing freedom. And we have been also pursuing that there will be marketing and pricing freedom because all the new gas, there is a marketing and pricing freedom. So we are expecting marketing and pricing freedom so that there should be growth in the industry.
One last question, if I may, on the KG Basin asset, any progress you would like to share any cost guidance in terms of what volumes could be by the end of this year and maybe from the KG Basin asset?
This KG Basin definitely, we have now the volumes with us also. And what I would like to share is that our FPSO, that is making to in [indiscernible] water from Singapore yard, and that will be reaching sometime in January or February. And accordingly, after booking up and other substitute engines and other equipment, so we will be ready to have a first oil and the gas. So what we are projecting is our -- the first oil we will be getting in May '23. And as far as the volumes are concerned, I think, our Pavan Aggarwal, he is our chief strategy, so he would like to answer that.
Reason to come from January and all major activities are going to -- which are undertaken during this period.
[Technical Difficulty]
In the 98/2, we are waiting for the fair weather season, which will be starting from January till April and we'll be undertaking many activities during this period. FPSO will be arriving. We will be booking up all the [indiscernible] and we expect our first oil to be coming up by May '23. And during this year, '23, '24, [indiscernible] to something around -- in the balance of '23, '24. Regarding oil or something around 1.935 MMT from [indiscernible] March '24 and incremental gas of around 2.784 this year.
Sorry, how much BCM, sir?
2.78 BCM.
2.78 BCM of gas and 1.93 MT of oil on post '23. That's what you are looking at.
Next question comes from Puneet Gulati from HSBC.
My first question is with respect to the increased repair and materials and the activity that you have rated at Mumbai Offshore, is it likely to result in increased volume from that field? Or is it just to prevent the downside? If you can give some color there.
Actually, this has been a preventive maintenance only. So that is what it has been happening because during the COVID time, and of course, the top pay also because certain things were our platform and facilities, there were some kind of you can say, damage to them also during Tauktae. And those repair and maintenance are also happening. And it will be not in the form of, you can say, increase in the incremental production, but it will be more like a regular repair and maintenance.
Mainly in offshore.
And it is a part of OpEx only -- mainly in offshore. And after getting the repair and maintenance, so we will be then getting [indiscernible] company also to the extent, which the part which was surveyed and which has been considered as a damaged part because of Tauktae.
And from the [indiscernible], is there any indication as to what kind of dividend are you likely to receive and in what currency, et cetera?
I would just like to call over Nirmal from OBLs and he will be the right person to give the reply to this.
As far as dividends of [indiscernible] are concerned, the large dividend was we had already repatriated that the interim dividend that we have received recently that is in line with our Russian banks. And we are working on mechanisms to repatriate that to Singapore, which is where our holding company for the bank on [indiscernible] space because Singapore is presently designated as an unfriendly country by the Russian authority. We have certain issues with repatriation, but we have received a dividend and they presently remain in rubles with our Russian bank account.
And then what is the contract?
One term. Equivalent of USD 42 million.
Next question is on this liability with respect to the Note 4 of your accounts. You have deposited close to some 10,000 crores at [indiscernible] and GST. Can you talk a bit about -- is this - and you still recorded it as a contingent liability. What is the risk that ultimately that you'll have to pay this fully and if you can give more color around the Note 4?
Yes, yes, basically, like we have come -- we have shown a continued liability of around 16,000-odd crores and against which we have a deposit of 10,000-odd crores. This deposit basically like we have made to safeguard ourselves against the interest, which can come later on. But we are pretty sure of getting this refund from the government because the cases which is -- which were there at the different high courts. They have not given anything on the law, but they have referred it to the Supreme Court special bench. And on the part of -- on the legal point, we are pretty sure that we'll be getting the refund and the case will be in our favor.
Okay, and lastly, if you can give some guidance on both the oil and the gas production for fiscal '23 ending '24.
Oil and gas production, yes, we have projections for that.
For the fiscal '23/'24 and '24/'25, you will be happy to note that we are going to -- reversing the declining trend of the OGCN production.
Fiscal 23% also, if you can. For fiscal '23.
Yes. the actual production of '21/'22 was 21.707 MMT, which we enticed to achieve up to 22.823 MMT for '22/'23. and '23/'24, it will be 24.636 MMT and for '24/'25 25.689 MMT.
Okay. And separately, if you can give the overview, sir.
And secondly, for the GAAP part, -- for the gas part in 2012, -- we had produced 40,452 BCM of gas -- just sorry, 21.680 BCM of gas. In '22/'23, and we said 22.099 BCM. '23/'24, it will be 25.685 BCM -- and in '24/'25, it is around 27,529 BCM of cash.
So we are on the rising trend.
[Operator Instructions] Next question comes from Sabri Hazarika from Emkay Global.
So I have 2 questions. Firstly, an accounting question, I mean, if we calculate the windfall tax per metric ton based on what you have reported around INR 6,400 crores divided by stand-alone and JV sales, so the number comes somewhat lesser than what has been like given -- I mean, in The Gazette press release. So is there any adjustment on the same?
So you mean to say that the windfall tax amount is INR 6,100 -- INR 6,400 crores. What is the issue?
So if we divide it with your total crude sales, so it comes something like INR 13,500 per metric ton. Whereas, if we take the average from the government website, then it comes to around INR 16,200 per metric ton. So I'm just wondering if there's some kind of like converted sectors...
I just went out some...
No, this as explained earlier, like there are different rates applicable for different periods. So whether you have taken one single rate and done the conversion based on what is there in the government side or whether you have done the actual...
No we have taken average. We have taken average.
So that would probably be the reason.
And secondly, you might be considering averages, you have evened out. But during the first 15 days, the production may be a little lower and then adjustment would be there in the later at calculations may not be in that way -- very secured in that way. We take it average.
Right. But this is like fully accounting for whatever is there in the government thing, right? -- sales has been -- like the OIDB, sales has been netted off. Where is the royalties on full gross level? That's right, right? Yes.
And something more to add. I think Mr. Anil Kumar if you...
Yes. Regarding this levy of windfall tax or special additional excise duties, you can see this is the production levy and that was first time it was implemented from 1st of July. So whatever quantity was available in the Mysore [indiscernible] which was produced prior to 1st of July, there duty was not paid. So that's why there is a discrepancy in our team.
Okay, okay, got it so it's like the inventory sales, which was like produced prior to that and so -- but this will be on your sales on, right, not on your production because like...
Excise duty is production levy. If it is not sales, it is sales levy.
It is production. Production.
Okay. So we have to take the crude oil production from there we have to like multiply that?
The quantity products from 1st July, we have paid duty.
And second question is relating to your dividend payout. So I think historically, you have been at the, what you call, 45% kind of an average range. Last year, it was less, but it was because of the taxation while the profit was inflated. So is it fair to assume that we would be somewhere like 45% kind of payout only considering that the financials of the company has improved significantly? We have -- we are now net cash also right now, and I think the CapEx is more or less a range bound only at around INR 30,000 crores, INR 32,000 crores. So is it fair to assume 45% payout?
I think our Chief Corporate Finance would like to address this issue.
So normally, what we are doing is we are keeping this dividend payout to be between 40% to 55%, and we hope to maintain that depending upon what would be our results in the subsequent quarters also. So as of now, we would not be able to confirm whether we are going to keep a particular level. But yes, we'll try to do it. And hopefully, we may be able to do it.
Depending on how the pricing or the oil and gas prices behave and if any, levies are there.
The minimum would be 40%, that's what you are saying, right?
No. It's also depending upon what we have agreed to do that. Normally, we can confirm that...
We can't confirm that well we have to see our CapEx plans and the actual profit that will come -- that will happen during the next 2 quarters.
Next question comes from Varatharajan Sivasankaran from Antique Stockbroking.
Two questions. Firstly, when you talked about oil first oil coming in the month of May. Should I assume first gas is also going to come in the month of May, in which case will you be doing the auction and have you worked out the methodology so that last time auction problems is not repeated?
Yes, Mr. Varath, you are talking about auction of gas or crude?
Oil and gas. KG gas.
KG gas, which will come -- yes, whatever gas is selling gas coming that we are offering through IGS or Mjunction, depending upon the nature of tenure of the contract because IGS is pertaining for short-term sales. So in the case of 98 by 2, there was price -- premium quoted by different agency, there was -- so we have returned back to the -- we have discontinued our trading -- but again, we have -- subsequently, we have already auctioned the same quantity, and we have already finalized.
Just to clarify that, sir, so the first gas is going to come in the month of May in [indiscernible]?
No, no. We are already producing the gas from 3 wells in new fields. And from May '23, we will be getting the first oil.
So the incremental gas production will happen in the month of May 2023, is that right?
That's right. Along with the total production, there will be the associated gas production also.
In terms of auction, are we going to also sell that in the IGS or you have a separate option for the incremental?
I think there is separate entity -- in IGS there is a condition that you can still, through IGS, only 10% of the total production or 500 SCMD. So that is a limitation. And over the IGS still for the contract period of 3 months, maximum 3 months. Of course, at [indiscernible], we are selling only for 15 days or 1 month. So there is restriction in IGS.
So what we have -- and we will have to auction it and maybe some quantity we can auction on a long-term basis also and some quantity we can do through Mjunction. This auction will be through Mjunction.
And potential timing, ma'am, most likely in February, March or next year later?
It will be in May also increase of the gas, May. Because some associated gas will come and the activity, which will be during our fair weather window, so that will also give us the results.
No, I'm talking about the auction planning ma'am.
So the question is whether we'll be doing any auction? Is that the question, Varath?
Yes, is there an auction anyway? And what would be the timing of the auction?
Whenever the gas is available, depending upon once we're sure over the gas and the quantity that we are going to get, which will be closer towards May, we would be carrying out the auction and sell it on the long-term basis through auction only. We are already selling gas over to [indiscernible] and GAIL. And so similarly, after auction, we'll sell it to whichever party comes out of that auction.
My second question was on the update on global assets relating to the current update. Starting with Russia, specifically at Sakhalin.
So will we do Sakhalin?
Yeah. Starting with Sakhalin. Of course an update across all the global assets.
Updates, okay. Our people, they will address the issue.
So pertaining -- what is the last information that you have so that I can give you that update accordingly.
I think our information is that the production has gone down sharply, almost down to...
Okay. So let me clarify here. The reason for -- the production has not just gone down, the production was stopped altogether. And this has got nothing to do with upstream issues. This was basically a fallout of the Ukraine conflict. Because of the Ukrainian conflict, the P&I Club insurance, which is an international insurance club for all seaborne vessels, especially crude oil vessels, this -- the owner of the Sakhalin Consortium Vessel came under sanctions and the insurance was withdrawn because of which the vessels could not sail the high seas and therefore, there was a tighten of situation and production was shut down.
Subsequent to that, in Sakhalin, in October, early October, the government of Russia issued a decree, transferring the assets of Sakhalin to Rosneft owned entity under the holding structure and an option was given to all the foreign participatory interest holders to exercise that right, which we have done, and we have also received a confirm our concern to participate has been accepted. So this is a situation as we stand today. The situation will develop further because there are a lot of formalities that need to be completed on paper for our reentry into the Sakhalin project.
However, we understand that production has already resumed, and we will be getting formal updates on that once we are formally back in the consortium.
And is there no incremental concern on the insurance front, so we should look at...
No. Now you have to understand that till today, the operator of Sakhalin was a western oil major who was unwilling to move out of the Western P&I Club insurance. Now that it has been taken over by the Russian authorities, there are multiple options for insurers, including sovereign guarantees. And Russian crude is being delivered all over the world through Russian hired vessels and the same thing should be applicable for Sakhalin also. So that situation is not going to be an issue.
How about the other assets, please?
Which assets in particular? We have 33 of them. So I'll give you the major ones. Vankor, Vankor is another effect in Russia, which as far as production is concerned, it has not been materially impacted for the very simple reason that the Russian national companies, the operator of the project, it continues to produce for the conflict. All the inputs are national and within the country. So production has not been majorly affected. There has been some issues with outsourcing of materials due to which there has been a drop in production of around 10%. But given the volumes in Sakhalin, that is not a major concern. The concern exists for us to detect the dividends as well in the international, which I have already informed before.
Apart from that, the other major effect would be CPO-5 which in this particular half year is our largest revenue generator and net cash flow generator. This is an asset where ONGC Videsh is the operator and it's also producing from this field order of magnitude is around 25,000 barrels per day of oil production. This was virtually 0, 3 to 4 years back. So it's a major little bit success. We will be expanding our operations. They are drilling additional 5 to 6 wells every year until 2030. We hope to reach 30,000 to 35,000 [indiscernible] by 2030 should everything go well.
Apart from that, BM-C-4, an exploratory block in Brazil, we have given declaration of commerciality. And we hope to align in conjunction with the offtake of Petrobras to bring the project online in the next few years. That is a few of the major projects.
[Operator Instructions] Next question comes from Vipul Kumar Shah from Sumangal Investments.
So my question is, when will we reach the peak production in KG-DWN? And what will be the volumes when we reach the peak production for oil and gas?
In 98/2, we'll be reaching our field action in '24, '25 and that will be to the tune of around 45,000 barrels oil per day and 12 MMSCMD of gas.
Would you repeat gas figure, sir, please?
It will be around 12 MMSCMD. 12 million standard cold meter per day.
Okay. And that gas will be subject to any price ceiling or price revision?
This gas from 98/2 is getting higher prices as per the price ceiling of the deep bottles, which is presently 12.46 and it's subject to revision on a half yearly.
Sure. So like ceiling will be 12-point...
12.46, the ceiling.
Next question comes from Vishnu Kumar from Spark Capital.
So the -- on OEM I heard the update that you just gave, sir. But will our production go back to something like 2.1, which we were doing last year in oil, 2.1 million tonnes we were doing, we're currently at about 1.4, 1.5? Can we go back to the 2.1 level in about a year's time from now?
So when you speak about this 1.8 or 2.1, are you speaking about one particular asset because...
No, I was just talking about the overall oil production which was last year doing at a quarterly run rate of about 2.1. We are currently at 1.5 on oil. With the restart of some of the assets you're talking about, can we get back to that level of 2, 2.1?
You have to understand that the Sakhalin itself is used to produce around 2 million tonnes of oil per year for us, 40,000 net barrels plus OEG. That was what got affected due to the Ukraine crisis. As I told you, we do have information of production restarting. However, there are a lot of inputs that would need to go into the field going forward. These inputs would be concerned by the very fact that most of these inputs are provided by Western service providers of the likes of Schlumberger or Weatherford or Baker Hughes or Parker Drilling.
Now to maintain the production at the last level itself could be a challenge. So I do not expect to answer your question shortly. In Sakhalin alone from the 2 levels, we consider ourselves very fortunate. By the end of this fiscal, we are able to reach 1.5 M&T, and that is our target for this fiscal. However, the situation is fluid. And as and when the situation evolves, the production should be reinstated in Russia.
In terms of the quarterly financials of OEM, despite the fall in production, our overall OpEx is not same. In fact, it's gone up by a couple of percentage points. I'm just trying to understand why would that be. Because between Q1 and Q2, there's a fall in revenue, but we have not seen some commentated fall in expenses. It's probably actually higher.
You are actually asking about the OpEx. The reason for that is very simple. In a post-merger situation, we are not able to capitalize many of our expenses and actually move it to the -- they get expensed that year itself. So this is primarily as the post-merger situation in Mozambique there because we are paying holding costs for our orders at hand and also work in progress. These costs actually add to the OpEx. We are not able to capitalize these costs.
Understood, sir. And just trying to understand the overall CapEx for the next -- this year and next year, is there a number? I mean, if you could just highlight what that number would be.
Every year, OVL has been regularly spending something like 5,000 crores to 6,000 crores of CapEx every year. Last year, it was marginally lower than 5,000 crores. But we'll continue to spend these amounts. This amount is clearly for the CapEx for the existing projects and does not factor in any inorganic acquisition that will happen in the meantime.
Okay. What is the debt at the entity level, sir?
The debt at present level? Our debt is around $4.6 billion to $4.7 billion.
Sorry. Coming to the ONGC part, do we expect any CapEx increases next year? You did mention that our end of the year, we are going to take a dividend policy, our CapEx also has to be considered for next year. So just trying to understand, is there a thought to increase next year CapEx for OEC?
Please. The thing is that, of course, the definite policy is gone by that. But then we -- generally, we have the CapEx level of 30,000 crores. But definitely, we are into so many MOUs and we are rectifying those MOUs, especially with regard to the green energy. So we have to see, so what are the things we have to take us. So we already have MoU with the Greenko that we already have MoU with -- of course, that is with the approval of the government, NTPC also. And then SECI also, then we are also having with Equinor. So we have to see that -- and now recently with the Rajasthan government also. So we have to see that how we have to bring that MOU into the implementation mode and see for certain integration products, especially with regard to the renewable energy. So that will definitely enhance our CapEx.
In case -- I mean, in case some of these MOUs do rectify, what would be the CapEx, probably we might have to invest till next 2 years, 3 years?
I think the Greenko itself, that is around $4 million. So that is upstream, as well as the downstream also. So they will be manufacturing through this electrolysis process, ammonia and -- there will be ammonia and hydrogen. So all that total CapEx will be around $4 million.
It would be around $1 billion to $2 billion.
Yes, $1 billion to $2 billion current -- next 1 to 2 years.
So today, that number is not there, which will probably you will confirm for next year, if this to invest is additional EUR 1 billion to EUR 1.2 billion.
Yes, yes.
My actual question was that our dividend policy is between 40% to 55%. If our cash flows -- additional cash flows allow us, can we go to that 55 percentage of -- you did mention about oil price, but anyways, we are around 75% as a net realization and gas price also, we are more or less assuming 6% to 7%, we are there. Can we get to that 50%, 55%, if this situation continues and our CapEx has not materially increase can we get to 55%?
Please appreciate that what we have delivered is just an interim dividend. And we are keeping an eye on the prices, which are extremely volatile. We may come out with another dividend depending on the realization that we get in the remaining part of the year. So on the ultimate payout ratio, we will take account at the end of the year.
Next question comes from Mayank Maheshwari from Morgan Stanley.
A few questions from my end. First was related to the marketing freedom on oil that you guys have got from sometime earlier this year. Can you just talk about have you seen any better pricing and realizations because of this marketing freedom that you have got?
We have rarely got...
Mr. Mayank there is a loud background noise basically from your end, I believe.
Yes. So sorry, I was just talking about the marketing freedom on oil that the government has given for domestic production of oil. Is there better realization that you have got on back of this now? And how you're thinking about the next year and the rest of this year itself in terms of discounts that you are kind of giving historically versus now versus the benchmarks?
The government has a complete marketing freedom. Pricing freedom was available earlier also. The marketing freedom government has given from first of October. And we have auctioned the crude in the month of October end for the offshore. And we have received a very good response in the auction process. And we see that we have get the premium in addition to real price, which was marked to this brand plus markup of $0.50. But the premium itself was around -- maximum premium we got in one of the field was $5.5 per barrel, and minimum was $5.10.
So there is -- you see the market -- the crude market is very, very volatile. And due to Russian crude coming in different parts of the world, there is volatility, volatility will continue but we are expecting better price in -- through October.
Sir, just to kind of clarify this. So the $0.05 to $5 premium that you're talking about our brand, this was earlier a discount that you used to get, correct? Is that fair of $3 to $4?
There was no discount in factor. We set our pricing was linked to benchmark crude of [indiscernible] life plus the GPW differential. Now if there is no concept of differential yet, because the GPW differential itself reduce the price to the extent of $2 to $3 per barrel. So that is a net benefit we are getting through auction because now if we benchmark to get a brand and plus premium.
Okay. So you're getting $2 to $3 discount has gone away, plus the premium that you're getting off of $0.05 to $5-odd. That's the range you're kind of getting. So now is it fair to assume your premium...
And Mayank, another important point is that the pricing of crude oil, so that is based on the field-wise assay, which we carry out. And that determines quality with the forecut method. So definitely, so once we are into this, so definitely, we will get a better price also. And that's what we have seen in our -- this time auction price also.
Interesting point, ma'am. So ma'am, is there a number that you guys have in your mind on an overall portfolio basis in the domestic side of a premium now that you will be getting on your overall crude assets?
Yes, I think it will be $3 to $4 per barrel.
But it is still not matured.
Mayank, what has happened is this is the first option that we have carried out in for a period of 3 months only as the market moves forward and we also come to know about the process et cetera, the refineries also get to know the process. we would see how the prices move forward. However, we do expect that we should get a better price than what we were getting earlier on. The amount we would not be able to put a figure on currently immediately.
No, that's clear. And the second question was more related to your VAP production, especially in Dahej. We have seen that it's not yet come back to the normalized levels we had seen historically. So any update there or when you think things can kind of come back to normal there, or its the new level will have to now assume that there's a lower production on Dahej?
No, the Dahej production was lower one partially because of the price hike LNG -- is based on LNG and that LNG prices have shot up very high. So that was one part of the story. But we do expect that we should be -- have -- moving forward the prices also go down and the prices of the products are better. We would be increasing -- our production should stabilize and should be better than what it has been in the recent past.
So no technical issues or anything around production apart of the economic point that you talked about.
No, no. There's no technical...
Next question comes from Abhishek Nigam from B&K Securities.
Sir, my question was on Mozambique. And there's -- that security is still evolving, and we still don't have clarity on when that project is going to start. And meanwhile, there is a lot of time that got lost. There is a lot more upstream development that is happening now versus what was happening 2 years ago. So my sense is costs would have also got incurred a bit. So in this background, is there a risk of further impairment on that project?
You have already detailed out the issues with Mozambique project. However, the situation is not as bleak as you make it sound in the current scenario because there has been significant progress on the ground with regard to the security situation. [indiscernible] forces have been on the ground for more than a year now, they have managed to clear a majority of the Cabo Delgado province that auctions are taking place.
And there has been return of the IDPs that internally displaced persons and also the authorities are taken over and situation is resumed. The consortium and the operator are very hopeful of the resumption of construction operations in H1 of next calendar year. That is what Total is understanding, so we should see a significant effort on the ground. As far as the segment is concerned, we haven't taken anything for the Mozambique project for the present. We will review the situation again during our annual accounting process next year.
Because we are running short of time now. Can we have last 2 questions, please?
Sure, sir. Next question comes from Aman Khanna from Numera.
Sir, you had earlier mentioned about the volume numbers for 98/2. Could you please also help us with the FY '25 numbers, how you're looking at that? And in -- related to that, could you also share -- you have mentioned that earlier, but what is the peak volume for oil and which year is this expected? I missed that part, please.
I think I have already mentioned for FY '25, our oil production and the sales is 2.178 MMT and gas is around 3.831 BCF. As we enter the peak production in the financial year '25 to the tune of 45,000 barrels of oil per day and 5 million cubic meters of gas per day.
And sir, lastly, I know the -- obviously, the situation is still fluid given that your political issues, but what would your sense be for OVL production for FY '24, '25? Financial year '24 and financial year '25.
We are producing a little over 12 MMT for the past couple of years. And we had planned to maintain the same going forward. However, in the present year, as you know, Sakhalin stopped production since April, and that has majorly impacted our production apart from a flood situation in South Sudan which has been offset due to our increase in production from Colombia. But given the issues in Sakhalin, we would be aiming at something close to 10 MMT or 4 plus OET for this financial year. For the next 2 financial years, it would be not the correct time to estimate to maintain as well an MMT of production, should Sakhalin come back to its original production as it was in time of April 2020.
The last question comes from Mr. Sumeet Rohra from Smartsun Capital Private Limited.
Ma'am, I would like to just get your sense on how do you basically see the government's approach towards the windfall tax because I mean if I understand correctly, the government has always mentioned that when crude prices go below $80, it's something like they will consider to withdraw.
So ma'am, crude is basically now holding between 90 and 100. Sir, effectively, is my understanding correct that basically for a matter of $10 or $15, I mean the entire governance and transparency, which was there in the oil and gas sector is now ceased because of $15 because I mean, technically, I mean, the reason I ask you this is because we have investments in downstream as well? So the thing is that what's the thought process of the government, right? Because effectively, it's only about a matter of INR 5 or INR 10 of diesel, which is basically the under recovery. So what is the thought process of the government management in terms of the oil and gas sector?
Sir, I think government is quite supportive. That is what we have seen in the last 2, 3 months since this levy of this additional excise. So although we have returned to the government that we are -- please withdraw this levy because we have our CapEx plans also, and we require the funds with our cash flows. This is the time when we can compensate for the other CapEx projects also.
We can do aggressive exploration, although they are ceased of the matter, but at the same time, so since it has governed by Ministry of Finance so definitely, government is in a balancing situation. So because you know that recently, this INR 22,000 crores has been given to the downstream also out of this windfall tax only. So that is what they have to balance it out. But then even with the levy of this additional excise, our position is quite comfortable. That's what you have seen in the yesterday's financial results also.
No, no, madam, can I just ask one thing. See, I mean, the thing is that all companies, whether upstream or downstream, all have got CapEx plans, right? And everybody needs to invest -- so my only humble point here is that just for a matter of INR 5 or INR 10 of diesel, I mean is it -- does it make economic sense to hold the economic interest of the oil and gas sector? Because, I mean, valuations have completely got distorted, right?
I mean whether you look at it in terms of whichever companies in the oil and gas, even if you take ONGC, for example, I mean, when ONGC to make half its profit, it was valued at twice the market cap, right? So effectively, valuations are getting hurt by this kind of interference by the government, right? Because on one side, they are raising gas prices, but on the other side, they're not raising the fuel prices. I mean, it's totally contradictory, right? So my humble request is, can you get some clarity, please, hopefully, by the next call we have?
We will definitely -- we are already in communication with the government, and we will continue taking up with the government in this regard. And we will try to set out on that -- these concerns of investors also to some rest.
Yes. Because I mean many Saudi by cutting production is defending $90 in oil. And if they continue to do that for the next several years, so I mean -- so the governance in the space can't be restricted because of $15 of crude, right? So I mean I think really you should intervene in this.
Sure, sure. We will definitely communicate yesterday also -- and our Board also our government nominee was there. So he is at top of the matter, and he is also very supportive. And we will continue doing that.
Thank you. Now I hand over the floor to Mr. Tongaonkar, Executive Director, Chief Corporate Finance, for closing remarks.
Thank you very much. On behalf of ONGC, we would like to thank our investors, analysts over here for taking the -- this call. And we hope that we have been able to take care of the issues that have been raised by the investors and analysts. And we hope that in future also, we'll continue to meet on -- whenever we have our results. And hopefully, we should have good results in the future also. Thank you so much. Bye.
Thank you. Ladies and gentlemen, this concludes the conference for today. Thank you for your participation and for using [ Dusaba's ] conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.