Every dollar increase in the price of crude burgeons ONGC's pre-tax profits by a staggering Rs 870 crore. As oil prices breach the $55/barrel mark, rising profits are expected to be a source of celebration as well as concern for ONGC chairman Subir Raha. There are two sides to the coin, quite literally: While the bulk of the money will have to go into paying government taxes, subsidies and dividends, he is still likely to be left with more money than than he can handle.
The biggest challenge seems to be not about making money, but about spending it. The chairman has to find ways to spend over Rs 10,000 crore or more in cash every year, in an environment of severe checks and balances.
His grandiose Rs 25,000 crore diversification plan into petrochemicals and power has just been shot down by the petroleum ministry, leaving him with no option but to concentrate back on ONGC's core E&P activities. A $2.5 million per day deepsea exploration foray is not going too well at this juncture and there are only a series of dry wells to show both on the east and west coast of India. Large follow-up investments will only be required after commercial reserves are determined.
Another avenue where money could go -- the re-development and re-machining plans in the company's aging oil fields -- have all been backed up with adequate investments. ONGC's political and bureaucratic masters will have to finally grapple with the basic home truth -- something that Raha already knows -- that there is just not enough prospectivity in Indian exploration blocks to justify ONGC's sole attention.
There is, of course, an opportunity to acquire large equity oil acreages through its subsidiary ONGC Videsh Ltd. But here again, the competition is stiff -- the Chinese have made a habit of piping us to the post. Finding good blocks at current global prices is clearly an increasingly uphill task. For once, Subir Raha finds himself in a paradoxical position -- all stocked up, but nowhere to go.
The biggest challenge seems to be not about making money, but about spending it. The chairman has to find ways to spend over Rs 10,000 crore or more in cash every year, in an environment of severe checks and balances.
His grandiose Rs 25,000 crore diversification plan into petrochemicals and power has just been shot down by the petroleum ministry, leaving him with no option but to concentrate back on ONGC's core E&P activities. A $2.5 million per day deepsea exploration foray is not going too well at this juncture and there are only a series of dry wells to show both on the east and west coast of India. Large follow-up investments will only be required after commercial reserves are determined.Another avenue where money could go -- the re-development and re-machining plans in the company's aging oil fields -- have all been backed up with adequate investments. ONGC's political and bureaucratic masters will have to finally grapple with the basic home truth -- something that Raha already knows -- that there is just not enough prospectivity in Indian exploration blocks to justify ONGC's sole attention.
There is, of course, an opportunity to acquire large equity oil acreages through its subsidiary ONGC Videsh Ltd. But here again, the competition is stiff -- the Chinese have made a habit of piping us to the post. Finding good blocks at current global prices is clearly an increasingly uphill task. For once, Subir Raha finds himself in a paradoxical position -- all stocked up, but nowhere to go.
