ONGC takes profit hit from royalty payments

ONGC finance head A. K. Srinivasan says the firm will take a Rs1,600 crore hit to its quarterly earnings to account for previous royalty payments to Indian states


ONGC has already made a Rs2,500 crore payment to two states as royalty on crude oil produced from April 2014, but had not reflected this because it was under litigation. Photo: Reuters
ONGC has already made a Rs2,500 crore payment to two states as royalty on crude oil produced from April 2014, but had not reflected this because it was under litigation. Photo: Reuters

New Delhi: India’s Oil and Natural Gas Corp will take a Rs1,600 crore ($239 million) hit to its quarterly earnings to account for previous royalty payments to Indian states, the oil exploration company’s finance head A. K. Srinivasan said.

ONGC has already made a Rs2,500 crore payment to two states as royalty on crude oil produced from April 2014, but had not reflected this because it was under litigation, Srinivasan said on Tuesday.

India’s Supreme Court has asked the federal government to compensate the western Gujarat and Assam for Rs15,000 crore in lost revenues due to lower royalties paid by state-run explorers ONGC and Oil India Ltd.

Indian law requires companies to pay 20% of the market value of oil produced as royalty to states where oil blocks are located.

From April 2008 Indian oil ministry asked ONGC and Oil India to pay royalty based on lower prices, as the two firms had given a hefty discount on crude sales to state refiners, in order to keep a lid on local fuel prices.

However, last year the oil ministry asked the two firms to settle royalty dues from April 2014 based on the market value of oil produced.

“We have already made payments of Rs2,500 crore to the state. In our accounts it was shown as advances to the two states. Now in the fourth quarter we will book this in our profit and loss account, Srinivasan told Reuters.

Despite this royalty adjustment ONGC is expected to post higher profits in the quarter to end-March due to higher prices on its crude sales. “Our average realisation would be $51-$52 a barrel”, he said. Last year ONGC sold oil for $34.88 a barrel.

Separately, a government official said the federal government will settle the Rs15,000 crore in instalments. “The government will pay 10-15% of the pending dues to the two states in this fiscal year to March,” he said. Reuters

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