ONGC may rationalise capex as COVID-19 hits project execution

New Delhi: State-owned Oil and Natural Gas Corp (ONGC) has warned that the COVID-19 pandemic will impact the speed of execution of its projects and the company is identifying opportunities for optimisation of capital and operating expenditure.

While about 9 per cent of the company's natural gas output was impacted by inability of customers to take supplies due to the coronavirus lockdown, lower oil and gas prices had impacted its revenues, the company said.

In a note on the material impact of COVID-19 pandemic submitted to stock exchanges, ONGC said operations and production have gone on uninterrupted during the nationwide lockdown imposed on March 25 to contain the spread of the coronavirus.

Crude oil production was almost at the same level as before the COVID-19 outbreak but natural gas "output was down by 9 per cent on account of less demand and offtake by customers due to the lockdown," it said.

However, with the easing of lockdown restrictions and gradual opening of industries, gas demand has been now restored to normal levels.

"With the imposition of lockdown, onshore operations were hampered in quite a few places which resulted in idling of drilling rigs and equipment.

However, since April 20, 2020, onshore operations have also been restarted in places where these were stalled and are near normal at present.

"It may however be stated that the COVID will impact the speed of execution of various projects and if COVID remains around for a long time, some disruptions in activity levels at local basis cannot be ruled out," it said.

The company is currently implementing several projects to bring oil and gas discoveries on both east and west coast to production. The projects under execution include development of KG-D5 block in Bay of Bengal.

ONGC said it currently has the financial capability to sustain its operations and activities including capital and operating expenditure, though both these are being closely examined afresh for possible optimisation and rationalisation.

"Management is well abreast of all the challenges and attempts are also underway to seek assistance from the government for rationalisation of existing taxes and duties structure," it said.

"Lower oil and gas prices are expected to impact internal resource generation capacity, but given low gearing levels at standalone basis fund raising for the same is not expected to be an issue," it added.

The company borrowed short-term funds to manage liquidity position during the lockdown.

"The onset of COVID itself will impact project progress to some extent and the company is identifying opportunities for Capex and Opex optimisations," it said. "Going forward it is anticipated that a combination of higher oil and gas prices, rationalization in expenses and some statutory relief will help the company to protect and maintain our activity level."

Also, there have been some disruptions in supply chains especially in the international arena but these have not yet had any major impact on day-to-day operations. 

"As far as some projects are concerned, the supply chain disruption has pushed back the anticipated completion dates. However, close monitoring is in progress to ensure that supplies and normalcy is attained at the earliest," it said.

ONGC top management closely monitored the operations, resulting in uninterrupted supply chain for smooth operations as well as supplying essential items required for safety and wellbeing of operational employees, and for continued production of oil and gas for the nation.