February 16, 2016: ONGC will cut down expense on travel, advertisements and sponsorships as well as 5-star meetings as it initiates cost controls in response to revenues getting hit by slump in global oil prices. With oil prices slumping to 12-year lows, Oil and Natural Gas Corp (ONGC) has begun cost controls as well as deferment of capital expenditure without adverse impact on operations. It has appointed McKinsey & Company to suggest areas where cost can be cut and operating expenditure controlled, sources privy to the development said.
The company has issued an office order stating that projection of prolonged soft prices will have adverse impact on its bottom-line and it was “imperative that due prudence is exercise while sanctioning all kinds of expenditure/ investments.” “Cost control and efforts for cost reduction as well as deferment of capital expenditure without adverse impact on operations is expected from all concerned,” the order said. Issuing areas of immediate cost control, it called for avoiding travel and where absolutely necessary the number of officers and the duration of visit be kept to absolute minimum. Also, video conferencing facilities be used to reduce movement of officers.
Proposals for participation in study tours, workshops, conferences and seminars abroad at company cost may not be entertained expect those which are fully funded by sponsoring agencies, it said. “Holding of meetings, conferences and seminars outside ONGC premises may be resorted to only if it is absolutely necessary,” the order said also asking officers to use vehicles judiciously and avoid wasteful expenditure. “Expenditure on sponsorship, advertisements and on cultural programs may be curtailed,” it added.
The company’s cost of producing every barrel of crude oil is USD 36 and after including return on investment as well as taxes and levies, the cost comes to USD 51.52 per barrel. The slump in oil prices to 12-year low will means that ONGC pays less royalty and assuming the government lowers its Rs 4,500 per tons burden of cess, the cost of production will come to about USD 30 per barrel. This compares to realisation of USD 30-32 per barrel in the current quarter, just about squaring off the cost. Sources said the company has already initiated measures to cut avoidable expenditure and is putting money only in priority tasks or activities needed to sustain its oil and gas exploration and production. There will be no cut in capital expenditure in oil and gas projects as such investment will help the company sustain or increase output, they said.
(Source: Pti, Indian Oil & Gas, February 16th 2016)
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