Page 8 - AsianOil Week 16

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ONGC pressures government over tax relief issue
PROJECTS & COMPANIES
INDIA’S state-run Oil and Natural Gas Corp. (ONGC) has reportedly asked the government once again for tax relief as low oil prices push its upstream division into the red.
The country’s largest oil and gas producer has asked the government to abolish the 20% ad valorem oil industry development (OID) duty when realised oil prices fall below $45 per barrel, local newswire PTI reported on April 22 quoting unnamed industry sources. It has also asked the central government to waive royalties paid on offshore oil and gas production.
PTI’s sources said ONGC’s management had warned New Delhi that its average realised price of $22 per barrel this month did not cover the company’s operating cost. They added that the government’s decision to slash prices for locally produced conventional gas to $2.39 per mmBtu ($66.11 per 1,000 cubic metres) had com- pounded the problem, with the company’s gas business set to generate annual losses of about INR60bn ($788.4mn).
The sources added that current oil and gas prices could not cover an annual capital expend- iture budget of INR300-340bn ($3.94-4.47bn) – the average level of ONGC’s investment in recent years – as well as its operating expenditure.
The OID levy only applies to oil produced from nominated and pre-New Exploration Licensing Policy (NELP) exploration blocks, which account for the majority of the country’s crude output. ONGC and state-run Oil India Ltd (OIL) pay the tax on fields that were nominated to them, while Cairn India pays the same tax on oil produced from its Rajasthan block.
This is the company’s second request for tax relief in a month, with PTI reporting at the start of April that ONGC had asked the government not only to abolish the OID duty but also halve its royalty payments to state governments for onshore production. The company pays 20% of the realised price of onshore production to the local authorities.
The newswire’s sources said at the time that ONGC may have to slash its capex, which would hurt production from older fields that relied on more expensive enhanced oil recovery (EOR) technologies.
ONGC is, however, understood to be looking to hire upstream service contractors at signifi- cantly reduced rates in the hope of slashing some of its costs.
While the company has not announced any exploration service tenders, India’s Financial Express quoted unnamed sources on April 23 as saying that it was closely watching international oil price movements to determine the best time to invite bids.
ONGC’s best chance at saving money lies with its offshore fields, which account for 70% of its oil production. The company paid INR100.42bn ($1.32bn) on rig, vessel and helicopter service contracts in financial year 2018-2019.
The paper reported that the company faced steep losses in 2020-2021 if production remained at around 24mn tonnes (480,000 barrels per day) while the domestic crude basket averaged $25 per barrel. It said the company’s per-barrel pro- duction cost of $35-40 per barrel would translate into a loss of $1.8bn over the 12-month period.™
SOUTHEAST ASIA
Pertamina cuts 2020 production targets
PROJECTS & COMPANIES
INDONESIA’S state-owned Pertamina has reduced its oil and gas production target for 2020 by 3% to 894,000 barrels of oil equivalent per day (boepd), CEO Nicke Widyawati revealed on April 20.
The decision to scale back the company’s upstream operations was driven by steep declines in domestic demand for fuel, the executive told a parliamentary committee. Indonesian demand for transport fuels has plummeted following
government-ordered social quarantine measures amid the coronavirus (COVID-19) pandemic.
“We are looking at where we can cut our costs,” Reuters quoted Widyawati as saying. “We are trying to cap production from existing fields and reducing capital and operational expendi- tures for new drilling.”
The company will lower its capex by 23% from a targeted $7.8bn, while operational costs will be trimmed by 30%.
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