ONGC refutes Goldman Sach's negative rating

State-run upstream major Oil and Natural Gas Corp (ONGC) Sunday refuted concerns raised by investment banker Goldman Sachs over corporate governance issues, saying the bank's analysis was "devoid of basic facts" and based on "non-comparable benchmarks".

"Corporate governance remains the highest priority for the management at all times. More than adequate disclosures are made on all operational as well as non-operational issues," said ONGC in a press release here.

In a point-by-point reply to the concerns raised by Goldman Sachs that led to a fall of two percent in ONGC shares, the company said: "A perusal of their report reveals that their analysis is devoid of basic facts and certain analysis is based on non-comparable benchmarks."

Goldman Sachs in its last week report said: "Since FY04, ONGC's promoters have taken almost $20 billion cash from the company without consulting minority shareholders." The diverted funds were used to subsidise loss-making state-owned downstream companies, it added.

The government holds 74 percent stake in the oil exploration major.

However, rejecting the allegations, ONGC said: "Subsidy discounts are applicable to crude produced from nominated blocks only, where there is no production sharing/profit oil sharing with the government. The decision on subsidy discount is understood to be sharing of these upsides in the absence of production sharing or profit sharing agreements."

ONGC noted that its retention price per barrel had steadily increased over the years, despite the increasing subsidy burden. In 2003-4, it was $26.46 per barrel, which increased to $49.31 in the first nine months of 2008-09. This had been largely due to the sky-rocketing price of oil in those months.

Some of the other issues raised by Goldman in its report were ineffective overseas growth strategy, unexciting execution track record in domestic business and limited focus on cost control.

ONGC, however, stated that production from overseas properties had grown from 3.87 million tonnes oil in 2003-2004 to 8.80 million tonnes oil in 2007-08. The percentage of overseas production to total production of ONGC Group moved from 7.23 percent in 2002-03 to 15.42 percent in 2007-08.

The company added that despite largely matured and depleting fields, production levels had been maintained or had marginally gone up.

ONGC's average lifting cost between 2002-06 was $4.83 per unit as against the global peers average of $5.37 per unit and ONGC's average finding cost (2002-06) was $2.29 per unit as against the global peers average of $3.05 per unit.