A statement released by state-run Oil and Natural Gas Corporation (ONGC) seems to be a statement of denial, more than anything else. It has been sent out days after a section of the media carried a report on how the country’s largest oil explorer’s cash reserves had shrunk by a whopping 98 percent between the end of financial year 2017-18 and September 2018. The statement said categorically that the company’s financials were strong and in place. However, a look at the company’s balancesheet (or lack of it) tells a different story.
ONGC, on its part, has chosen to defend itself by saying that the reports that have appeared in the media, based on its own balancesheet, do not present a true picture. “ONGC reaffirms that it has strong financials in place to finance projects both ongoing as well as upcoming ones. The company’s operational plans and expenditure thereon has also been in line with its requirement and the news report on its fiscal position is completely out of place. There is no plan or item of expense that had to be deferred due to paucity of funds or resources,” the company said in a statement. Referring to the acquisition of HPCL, the statement said, “The acquisitions made by ONGC are going to strengthen the company’s growth trajectory. ONGC, on standalone basis, has a very conservative debt-equity ratio which compares favourably with global benchmarks. The rating of the company is also very strong compared with its peers in the industry.”
Because oil explorers are involved in a business that is risky in nature, they need ample cash reserves to be able to cover damages, if they occur. “Companies involved in exploration and production typically require some cash for leverage, as it’s a high-risk business. Internationally too, E&P (exploration & production) companies do business mainly on equity and not on debt. Better liquidity also helps in improving the firm’s credit rating internationally at the time of raising funds,” Aloke Kumar Banerjee, former director (finance) at ONGC said.