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ONGC has disclosed a 176% reserve replacement (RR) figure for FY11. However, this relates to
domestic 3P reserves. The 1P RR (not disclosed) is generally lower. More importantly, the 3P
reserve does not result in any increase in medium-term oil/gas prod, which has in fact, remained
flat/declined marginally.
In FY11, ONGC added 83.56mmtoe of ultimate reserves from its own domestic blocks
(excluding share of joint ventures), resulting in a reserve replacement ratio (RRR) of 176%.
Over last six years, this ratio has remained above 100% and has been improving every year.
Normally, a ratio higher than 100% means a rising reserve base which implies a rise or
potential rise in production.
However, the above ratios calculated by ONGC is its ultimate reserves (essentially 3P). The
1P (proved reserves) figure which is essential to deliver medium-term growth has not been
disclosed (tends to be available after a lag of 2-3 months).
Data till FY10 shows that 1P reserve additions have been considerably lower compared to 3P
(note that 3P data excludes contribution from JVs whereas similar data for 1P includes JV as
comparable data not available). Additions to 1P indicate near-term production capacity. The
past data shows that despite the rising 3P RRR, production has been flat to marginally down
in last 5-6 years. ONGC is either having execution issues in converting the reserves to
production or is consciously avoiding a higher production rate to maintain its reserve base.
We believe in the former reason.
Net/net, while rising reserve is good news, it is not positive for the share price unless there is
clarity on cash flow generation from these reserves. The key positive trigger would be a rising
production profile rather than rising reserve base.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ONGC has disclosed a 176% reserve replacement (RR) figure for FY11. However, this relates to
domestic 3P reserves. The 1P RR (not disclosed) is generally lower. More importantly, the 3P
reserve does not result in any increase in medium-term oil/gas prod, which has in fact, remained
flat/declined marginally.
In FY11, ONGC added 83.56mmtoe of ultimate reserves from its own domestic blocks
(excluding share of joint ventures), resulting in a reserve replacement ratio (RRR) of 176%.
Over last six years, this ratio has remained above 100% and has been improving every year.
Normally, a ratio higher than 100% means a rising reserve base which implies a rise or
potential rise in production.
However, the above ratios calculated by ONGC is its ultimate reserves (essentially 3P). The
1P (proved reserves) figure which is essential to deliver medium-term growth has not been
disclosed (tends to be available after a lag of 2-3 months).
Data till FY10 shows that 1P reserve additions have been considerably lower compared to 3P
(note that 3P data excludes contribution from JVs whereas similar data for 1P includes JV as
comparable data not available). Additions to 1P indicate near-term production capacity. The
past data shows that despite the rising 3P RRR, production has been flat to marginally down
in last 5-6 years. ONGC is either having execution issues in converting the reserves to
production or is consciously avoiding a higher production rate to maintain its reserve base.
We believe in the former reason.
Net/net, while rising reserve is good news, it is not positive for the share price unless there is
clarity on cash flow generation from these reserves. The key positive trigger would be a rising
production profile rather than rising reserve base.
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