ONGC will lose $207 million due to gas price reduction says Moody’s

• State-owned oil company ONGC will be impacted by the government’s decision to reduce natural gas prices.
  
• On September 30, the government reduced domestic gas prices by 12.5%.
  
• ONGC will lose as much as $207 million or ₹1,460 crore in revenues.

Oil major ONGC will lose as much as $207 million or ₹1,460 crore as the government of India reduced the prices of domestic natural gas, says a report by rating agency Moody’s. On September 30, the government reduced them by 12.5%.

However, one would believe that ONGC, which banks mostly on exploration and production of crude oil, will not be impacted heavily.. Yet, Moody’s believes that this is credit negative for the state-owned oil company. The agency gave a Baa2 stable rating to the Navratna company.

“The decline is equal to 0.3% of the company's expected revenue and around 2% of pre-tax profits for FY2020,”said Moody’s estimates. Most of ONGC’s revenues, over 73%, come from production and sale of crude oil. A mere 17% of its revenues comes from natural gas production.

The government revises gas prices every six months as per a formula which came into implementation in 2014. “Gas prices in India are determined by taking a volume weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia,” the agency explained.

ONGC produces as much as 50.04 million metric tonnes of oil and oil equivalent gas (MMtoe) as per its annual report. For the financial year ending March 2019, its natural gas production grew by 5.4%. A large chunk of its natural gas comes from Panna Mukta Tapti gas fields which it runs along with Reliance Industries and British Gas.