HPCL acquisition to shield us against revenue shocks: Shashi Shanker

Shashi Shanker, who took over charge as Oil and Natural Gas Corporation (ONGC) as chairman and managing director from 1 October 2017, has an experience of over 30 years in diverse Exploration and Production (E&P) activities. He is credited with leading the ONGC drilling of the deepest deep-water well covering a water depth of 3174 metre, a world record. Shanker is also the director (in-charge) and member of the High Powered Steering Committee for Government’s flagship initiative ’Make-in-India’. During a recent media interaction held in Mumbai, he spoke with DNA Money on a range of issues affecting the industry in general and ONGC in particular. Below are the excerpts.

Would you consider Hindustan Petroleum Corporation Ltd (HPCL) 's acquisition as a huge burden on ONGC's finances, specially since its valuation seems to be pretty high?

There is an impression this acquisition decision was thrust on us. That is not the case. It was announced by the finance minister in the Budget and then, they consulted us on what we want. We chose HPCL after considering all the pros and cons. We are confident that we will be completing the deal before March-end. Advisors are working on the amount that needs to be shelled out for the acquisition.

The real rational behind the move is the fact there is fall in revenue in normal business set up when the crude prices go down for an upstream company, and the revenue rises with the crude prices’ increase. Inversely, the revenue for downstream companies falls when crude prices surge, while revenue climb when the crude prices drop. Therefore, to maintain a balance and insulate ONGC from the shocks of fall in revenue, the deal with HPCL is important. We have around 15 million tonne capacity in Mangalore Refinery & Petrochemcials (MRPL), but we have no retail presence. However, HCPL has huge retail presence with over 14,400 outlets, but does not have enough refining capacity. So, there is perfect business sense in choosing HCPL.

How is the work at Russia's Vankor shaping up considering the acquisition has significant strategic importance to India, both in terms of augmentation of India’s energy security and enhancing the country's stature in the global political and economic arenas.

As you know, Vankor is the second largest field by production in Russia - accounts for 4% of Russian production. It has started generating revenue resulting in addition of 124.61 million tonne of oil equivalent (Mmtoe) of proved and probable (2P) reserves. We expected production of 4.628 million metric tonne (MMT) of crude and 1.716 billion cubic metre (BCM) of gas in FY18.

What is the latest update on phase-III refinery expansion at Mangalore Refinery Petrochemicals Ltd (MRPL)?

All units under Phase-III refinery expansion commissioned as MRPL is producing Euro IV grade of petrol and diesel and is equipped for commercial production of Euro V. MRPL declared dividend of 60% i.e., Rs 6 per share amounting to Rs 1,052 crore. To top it, the company achieved highest revenue of Rs 5256.6 crore with exports of Rs 3741.2 crore in FY17. MRPL is now focusing on expanding its domestic market presence by direct marketing of its products Petcoke, Sulphur and Polypropylene.

The government apparently is not happy over the low yields from the ageing gas and oil fields owned by ONGC and want to give it to the private players in order to improve its efficiency? Any comments as to what kind of arrangement it will be with the private players and how much improvement in output is expected from it?

We have not got any such proposal. I too read in the newspapers. We ourselves are taking so many modernisation projects in order to improve the efficiency of these fields.