oil natural gas corpn ltd share price Management discussions

retail inflation eased to 4.25%, its lowest level in 24 months⁴.

The Goods and Services (GST) tax collection data conveys two important messages: first, the new indirect tax system has unquestionably matured; and second, the sustained growth of the tax collections demonstrates the Indian economys resilience despite global headwinds. Positive economic indicators would give a sigh of relief to policy makers as aggressive tightening hasnt stifled growth, the Indian economy grew 7.2 per cent in 2022-23 as per latest provisional estimates of National Statistical Office (NSO).

Nonetheless, the challenge of the devaluation of the rupee, while still performing comparatively better than most other currencies, persists. The likelihood of the US Federal Reserve raising policy rates further adds to this concern. Moreover, the ongoing increase in global commodity prices and the strong growth of the Indian economy raise the possibility of a widening current account deficit. Additionally, exports are displaying weakness due to the subdued outlook for global trade in 2023.

The widening fiscal deficit resulting from increased government spending during the pandemic presents fiscal challenges that demand effective management to ensure long-term sustainability.

These developments have posed risks to the Indian economys growth in FYRs.3, leading many global agencies to revise their growth forecasts for India downwards. World Bank has lowered Indias growth forecast for the current fiscal year (2023-24) to 6.3% from its previous estimate of 6.6% made in January,

whereas Reserve Bank of India (RBI) has projected the GDP growth rate for 2023-24 at 6.5 percent⁵. Despite the downward revision, the growth estimate for FY23 in India remains higher compared to most major economies.

The government has proposed a 33% increase in the capital expenditure target to Rs.0 lakh crore for this fiscal year. This amount accounts for 3.3% of the countrys economic output and aims to stimulate demand and consumption in the economy. It is crucial to strike a balance between stimulating economic recovery and maintaining fiscal discipline to avoid potential negative consequences on the overall economy.

The size of domestic consumption, as well as favourable demographics, an expanding tech ecosystem, and the quick digitization of the economy, are some of the tailwinds that could propel Indias growth in the years to come.

2. Global Energy Sector

The current global energy scenario is a lot more complex & bigger than previous ones. The oil shocks of the 1970s presented policymakers with a reasonably straightforward task: lessen reliance on oil, particularly imports of oil. Contrarily, the evolving challenges in energy world is multifaceted, encompassing not only natural gas but also oil, coal, electricity, food security, and climate change.

The oil and gas sector seems to be characterized by constant unpredictability and potential volatility. Since their peak in 2022, energy prices have decreased significantly due to weaker prospects for global growth, milder-than expected winter in Europe & concerted effort to increase energy efficiency and conservation. The ensuing short-lived but significant increase in energy prices shifted the emphasis away from climate action toward supply security and affordability.

Natural gas prices in Europe have fallen precipitously, with a 53 percent decline expected in 2023, However, it will continue to be elevated, comparable to average levels observed during 2015-19.

Energy access and equity are recognized as important factors in the evolving energy scenario, efforts are being made across the globe to extend sustainable energy services to masses. International agreements, like the Paris Agreement, act as the foundation for international cooperation and emission reduction initiatives, the majority of oil and gas companies have outlined the significance of a transparent near-term de-carbonization strategy.

In 2022, the oil and gas (O&G) sector saw record profits, which gave them plenty of cash flow to support their strategies in 2023. This might aid in addressing recent underinvestment and speeding up the energy transition. Environmental initiatives will still be a key indicator for the sector as a whole. In the upcoming years, it will become more significant as governments around the globe implement policies to reduce emissions and quicken the pace of the energy transition.

Governments are establishing goals for renewable energy production, putting in place carbon pricing systems, and offering financial incentives for clean energy investments. Technological innovations are a major force behind the evolving energy landscape. Through ongoing research and development efforts, renewable energy sources, energy storage technologies, and energy management systems are becoming more efficient and affordable.

At all levels, the industry must effectively communicate and broaden the story about energy. The industrys ability to garner public interest and address issues with environmental and social impacts is crucial to maintaining its social license.

Oil Prices & Demand

The fundamentals of supply and demand determine price in every market, and the oil market is no different. When supply exceeds demand, upward price pressure builds; conversely, when supply falls short of demand, downward price pressure grows. The oil market differs from other markets in that non-fundamental factors, such as recessionary fears, geopolitical risk, and speculation, also affect the price. In fact, their effects are probably more pronounced in the oil market than in other markets.

Up until now in 2023, oil prices have fluctuated but have generally averaged around USD80 per barrel. In light of the uncertain global growth prospects, Saudi Arabia and other OPEC+ members decided to implement an additional reduction of 1.66 Million barrels per day (bpd) in oil output during early April 2023, on top of the 2 Million barrels per day reduction announced in October 2022⁷.

In June 2023, Saudi Arabia made additional efforts to stabilize the market by pledging to cut its output by an extra 1 Million bpd. Russia has also pledged to reduce its output by 0.5 Million bpd from August 2023. Considering all the reductions implemented so far, the total announced cut in oil output amounts to 5.16 Million barrels per day.

Its still on track for non-OPEC supply growth (excluding OPEC+ participants), driven by US gains, to roughly correspond to global oil demand growth in 2023.This helps explain the recent OPEC+ cut — and why further OPEC+ cuts may come about if Chinas demand growth disappoints. The increase in production reflects the rise in upstream spending since 2020.

OPEC and the International Energy Agency (IEA) forecast demand to grow by around 2.4 Million bpd, however the US Energy Information Administration (EIA) has it at 1.6 Million bpd. Lower energy prices may result if global demand falls below expectations, with prospects in China holding significant importance as it is projected to contribute over 50% of the global oil demand increase in 2023. On the positive side, potential risks to the price forecast include limited growth in U.S. oil production, insufficient spare capacity among OPEC members, and the potential for OPEC to opt for additional output reductions.

export capacity restrictions, the price cap, and upstream investment could have a negative impact on oil flows from Russia at some point in 2023 or 2024.

Based on existing policy settings IEA estimates that, growth in world oil demand is set to slow markedly during the 2022-28 forecast period as the energy transition advances. While a peak in oil demand is on the horizon, continued increases in petrochemical feedstock and air travel means that overall consumption continues to grow throughout the forecast. IEA estimate that global oil demand reaches 105.7 mb/d in 2028, up 5.9 mb/d compared with 2022 levels⁸. Whereas Rystad Energy forecasts oil demand to peak at 105 Million barrels per day (bpd) in 2026 and then decline to 62 Million bpd by 2050⁹.

The general long-term price environment predicted by S&P Global is between USD 70 and USD 80 per barrel in real (constant dollar) terms, which seems sufficient to encourage a sufficient long-term supply. There is still a sizable amount of new oil production required, despite the fact that the peak crude demand is rapidly approaching. The majority of new supply volumes are required just to maintain global oil production at its current level, with the aggregate base declining by about 3% annually.

It expects a Global peak demand for crude oil by 2026¹⁰.

The oil price and demand landscape continues to be characterized by volatility and uncertainty. Fluctuations in consumer demand, along with geopolitical factors, have a significant impact on oil prices. As a result, the oil industry is likely to experience ongoing unpredictability and risk in the foreseeable future.

Gas & LNG

In 2022, the European and global gas markets faced a significant supply shock due to Russias substantial reduction in pipeline gas deliveries to

r2038^W

the European Union. Throughout the year, these deliveries were reduced by 80%, consequently leading to a global energy crisis.

Europes TTF benchmark price saw peaks exceeding USD 90/MBtu in 2022, even as the European Union and its partners debate ways to reduce reliance on Russian gas and curtail its revenue from energy sales. Energy shortages have also resulted from the strains on the gas supply in several developing nations that depend on imported gas, particularly Pakistan and Bangladesh. Major growth markets for gas such as India and China have meanwhile sharply reduced their LNG imports in 2022¹¹.

According to the most recent estimates, global gas consumption decreased by 1.5% in 2022, mirroring the decline that was seen in 2020 after the first wave of Covid-19 lockdowns. The main import markets in Europe and Asia saw the majority of demand reduction. Gas use was decreased in energyintensive industries due to the sharp increase in gas prices, which also supported gas-to-coal switching dynamics in the power sector.

the summer of 2021, despite still being significantly higher than their historical averages. Storage facilities ended the heating season with inventory levels that were significantly higher than the five-year average. This is anticipated to lower the demand for injection during the summer of 2023 and possibly improve market fundamentals¹². There are grounds for cautious optimism for supply security given the eased market pressures and relatively well-stocked storage facilities.

The future of natural gas is dependent on the outcome of two important but conflicting trends: rising demand in emerging economies as they develop and industrialize, which is counterbalanced by a switch from natural gas to lower-carbon energy, led by the developed world. The rate of the energy transition determines how these conflicting trends will ultimately affect the worlds gas demand. Exploration:

average of global discovered volumes during the period 2000-2010 was around 42 billion barrels of oil equivalent (boe).

However, in the following decade, there was a substantial decline in the global average of discovered volumes, which dropped to approximately 19 billion boe. Interestingly, offshore discoveries played a significant role in this period, representing around 50% of the cumulative discovered volumes. This indicates a growing prominence of offshore exploration activities and the increased importance of offshore resources in meeting global energy demands.

The sharp decline in crude prices starting in 2015 led to an overall reduction in exploration expenditure. Although there was a temporary uptick in 2019, the effects of the pandemic in early 2020 once again constrained spending. As a result, companies have adopted a more cautious approach, resulting in a decline in global exploration spending from over USD 100 billion per year at the beginning of the previous decade to approximately USD 42 billion in 2022.

Explorers have become more discerning in selecting prospects, focusing only on prominent and highly ranked opportunities with a relatively higher chance of success. Increase in oil prices from last year, which saw Brent crude surge past USD 100 per barrel before falling back to around USD 80, has not directly translated into a similar increase in exploration capital expenditure (capex).

Licensing activity this year is likely to stay on par with 2022.Rystad Energy is expecting 60 rounds that are expected to be completed, out of which three are concluded, around 16 are currently in the bid evaluation stage, another 16 are open for bidding, and the remaining 24 are still in the planning stage¹³.

are in mature basins, hence smaller-sized blocks are expected be awarded in 2023, in contrast to frontier areas where larger tracts are usually awarded for preliminary exploration.

Further splitting well activity by water depth, drilling is set to increase for both deep-water and ultradeep-water targets in 2023. Only 15% of wells drilled last year were in extreme depths, whereas Rystad Energy expect this level will increase by nearly 4% this year. Some nations are reconsidering the case for issuing exploration permits for new domestic oil projects in light of the high price of oil and worries about energy security. The best candidates for filling any short-term supply gaps are projects with shorter lead times and quick payback periods, like tight oil and projects to increase production from existing fields.

Investment

In 2014, global upstream investments reached a peak of nearly USD 900 billion. However, following the collapse of oil prices in 2015, investments declined and dropped to approximately USD 500 billion two years later. Another significant decrease occurred in 2020 when investments fell to USD 400 billion due to the impact of the pandemic and the subsequent decline in oil prices. However, there was a recovery in investments in the following year, the upstream oil and gas sector experienced a resurgence in 2022, with record cash flows bringing back confidence, and this encouraging development has inspired optimism for the coming year.

However, it is important to note the significant challenge posed by cost inflation. Upstream costs have seen a sharp increase, primarily driven by higher material costs. Also after years of relative stability, Capital spend in upstream oil and gas continues to recover, but the spectre of windfall taxes adds uncertainty to the cautious mind-set of oil and gas companies

Also in an effort to combat skyrocketing inflation, interest rates have risen to their highest levels since the 2008-09 financial crisis. The tight monetary policy had a significant impact on asset allocation strategies, causing a shift away from riskier assets to safer ones, like cash and bonds, in the current environment marked by recessionary fears and even financial uncertainty.

According to Wood Mackenzie, the number of final investment decisions (FIDs) for oil and gas projects

in 2022 fell short of expectations. However, they predict that in 2023, there will likely be an increase in financial investment decisions (FIDs) in the upstream oil and gas sector. It is estimated that up to USD 185 billion will be committed to developing approximately 27 billion barrels of oil equivalent (boe). This indicates a potential uptick in investment activities and a focus on expanding production and exploration efforts in the industry.

Global investments in the upstream oil and gas industry are expected to rise by an estimated 11% to USD 528 billion in 2023 from USD 474 billion in 2022. This suggests that investment levels within the sector are continuing to rise, Middle Eastern NOCs are the only segment of the industry spending more than before Covid-19¹⁴.

In 2022, improvements in oil market conditions led to the sanctioning of projects that are expected to add 1.6 mb/d to global production by 2028. Brazil accounts for 20% of the sanctioned volumes, while the United States and Guyana each contribute 14% and Saudi Arabia provides 12%.

often meet these requirements, making regions like Guyana, the US Gulf Coast, Brazil, and emerging producers like Namibia particularly attractive to investors. Short development cycles have also become a priority, furthermore, geopolitical risk is gaining importance, particularly in the context of the geo-economic fragmentation.

M&A

In 2022, there was a notable decline in global upstream mergers and acquisitions (M&A) activities, coinciding with the accelerated energy transition. What stands out is that, for the first time ever, spending on low-carbon acquisitions surpassed spending on upstream acquisitions.

This shift indicates a growing trend towards investments in low-carbon and renewable energy sectors. Companies are increasingly recognizing the importance of diversifying their portfolios and embracing cleaner energy sources. As a result, more resources and capital are being directed towards acquiring assets and companies that contribute to the low-carbon transition.

At the same time, many stakeholders in the energy sector believe that a successful transition does not start with restricting and replacing the supply of fossil fuels, rather with shifting energy demand over to low-carbon energy sources.

Total global upstream M&A transaction value of USD 101.1 billion in 2022 decreased nearly 30% year over year, falling back to the 2020 pandemic low. Corporate upstream M&A deal activity in 2022 experienced a steep decline in terms of transaction value, falling 43% to USD 52.1 billion, the lowest total since 2017¹⁵. According to S&P Global Commodity Insights, the global upstream mergers and acquisitions (M&A) deal flow in 2023 is anticipated to remain below the longer-term average normalized levels.

Several factors contribute to this projection. Geopolitical instability is one of the key factors impacting the commodity price outlook and creating uncertainty in the market.This instability leads to disagreements between potential buyers and sellers regarding valuations, making it challenging to reach mutually beneficial M&A agreements. Additionally, the accelerating energy transition and the adoption of lower-carbon corporate strategies by historically active upstream buyers have an impact.

3. India Energy Snapshot

Energy and economic growth are inextricably linked: growth is impossible without access to energy, and economic expansion leads to increased energy use. India is likely to see the worlds biggest rise in energy demand this decade, with demand climbing 3 per cent annually due to huge urbanisation and rapid industrialisation. As the worlds third-largest energy consumer, the country faces the task of meeting its growing energy demands while striving for a sustainable and cleaner energy future.

requirements, and the largest single fuel in the energy mix is still coal.

India heavily depends on imports to meet its needs for gas and oil. As the number of vehicles on the road has increased, so have oil consumption and imports. In order to maintain energy security, efforts are being made to diversify import sources, increase domestic exploration and production, and explore alternative fuels. Indias energy scenario is characterized by a dynamic landscape of challenges and opportunities.

According to the BP Energy Outlook, renewable energy sources and, to a lesser extent, natural gas, will drive the rapid rise in primary energy. India has the fastest-growing energy demand of any nation, making up roughly 14% of the worlds total primary energy consumption in 2050, up from just under 7% in 2019.

India has achieved significant progress in the renewable energy sector, establishing itself as a market leader in the worldwide renewable energy market. India has seen extraordinary increase in renewable energy capacity as a result of central government policies and efforts, technical improvements, and major international investment. India has set an ambitious target of 500GW by 2030. With about 173 GW of installed capacity, the

country has one of the largest renewable energy markets¹⁶. Overall, Indias energy landscape is evolving, with the focus shifting to balancing the need for increased access to energy, economic development, and environmental sustainability.

Crude Oil & Natural Gas production

As per Petroleum Planning and Analysis Cell (PPAC) data, Domestic crude oil production in FYRs.3 stood at 29.18 Million Metric Tonnes (MMT) versus 29.70

Consumption of Petroleum Products

According to PPAC figures, domestic petroleum products consumption in FYRs.3 increased by over 10.2% percent to 222.3 MMT, as demand for transport fuels surged as the economic activity picked up. Except Naphtha, LDO, SKO, Lubricants & Greases & Bitumen, all petroleum products reported a growth in consumption during April- March 2023 compared to the same period of the previous year.

Petrol consumption was up 13.4 per cent at 34.9 Million tonnes in 2022-23 while diesel sales were up 12 per cent at 85.9 Million tonnes. Consumption of LPG was up 0.9 per cent at 28.5 Million tonnes. ATF demand soared 41 per cent to 7.4 Million tonnes mainly because full aviation services resumed during the period.

Import and Export

MMT during FYRs.2. ONGCs standalone production was 19.58 MMT versus 19.54 MMT in FYRs.2. Production from Oil India Ltd and PSC/ JVs was 3.16 MMT in FYRs.3 and 6.44 MMT in FYRs.2 respectively.

Natural Gas output in FYRs.3 was 34.45 Billion Cubic Metres (BCM), versus 34.02 in FYRs.2. ONGCs standalone domestic output stood at 20.63 BCM. Oil India produced 3.04 BCM and other private operators 10.78 BCM.

current account deficit.

The countrys import dependence has increased owing to a steady decline in domestic output and surge in demand, above the pre-pandemic level of imports, which was 227 Million tonnes in 2019-20¹⁷. Petroleum product exports decreased to 61 MMT from 61.7 MMT in FYRs.3.

Crude oil Price: Indian Basket

Crude oil price of the Indian basket averaged USD 93.15 per barrel during FYRs.3 compared to USD 79.18 per barrel in the previous fiscal. The rise in prices was the steepest in the month of June 2022 when the Indian basket averaged USD 116.01 per

barrel¹⁸. The supply concerns have kept global oil prices elevated since Russia-Ukraine Crisis in February. India, which meets nearly 85% of its oil needs through imports, could be hit by a widening trade deficit, weakening rupee and persistent higher inflation. Higher oil Prices leads to broader price increases since it adds to input costs for so many products.

As crude oil prices experienced a surge, the government responded by introducing the Special Additional Excise Duty (SAED) on oil. Subsequently, the Government remained proactive in adapting the windfall tax to align with the fluctuations in crude prices. As a result of these measures, ONGCs earnings have consistently stayed at the targeted levels, with net realizations ranging between USD 70 and USD 75 per barrel. The current prices are at a level that aligns with ONGCs strategic outlook and will boost the capex spending and fast track the monetization of discovered fields.

Domestic Gas Prices

The prices of domestic natural gas for H1 FYRs.3 were revised to USD 6.10 per MMBTU. In case of gas produced from discoveries from deep-water, ultra deep-water and HPHT fields, the ceiling price was revised to USD 9.92 per MMBTU.

In order to give a fillip to the gas based economy, focus is being given to enhancing domestic gas production, expeditious development of gas infrastructure as well as development of Gas market by providing open access to gas infrastructure. Efforts are underway to rationalise gas pipeline tariff structure for improving the affordability of gas across the country and for attracting investments into the gas infrastructure.

The domestic natural gas pricing structure has changed over time, with India aiming to gradually transition from regulated pricing to pricing freedom. Recently the government has approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of ONGC/OIL, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where Production Sharing Contract (PSC) provides for Governments approval of prices.

The APM (Administered Price Mechanism) price of such natural gas shall be 10% of the monthly average of Indian Crude Basket and shall be notified on a monthly basis. A floor and ceiling price between USD 4 and USD 6.5 per MMBTU for the gas produced by ONGC & OIL from their nomination blocks shall apply to existing production wells. Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL, would be allowed a premium of 20% over the APM price.

Given that the government plans to increase gas consumption from the current level of 6.5 percent to 15 percent in the primary energy mix by 2030, the new price regime would provide a much-needed boost towards a gas-based economy. Increased use of gas as a fuel in the economy is necessary for India to achieve its 2070 net-zero climate change goal. Under the new gas pricing regime, producers would also receive sufficient protection from unfavorable market fluctuations and incentives to boost production. Present remunerative prices will unlock value while ensuring a steady and reliable supply of indigenously developed gas to the countrys growing industrial and commercial setup - making that the perfect embodiment of an ‘Atmanirbhar Bharat philosophy.

Domestic Upstream Reforms and Initiatives

The domestic upstream sector has witnessed significant policy changes and forward-thinking decisions over the past few years. The GOI has implemented a number of policy changes to boost exploration and production activities in India. The

>y2038

National Seismic Project and Reassessment of Hydrocarbon Potential, among other initiatives, are moving forward quickly on the ground and at a rapid pace in policymaking, which will give the necessary support for increasing oil and gas supplies.

Some of the key reform measures have been the introduction of a new licensing regime - Hydrocarbon Exploration and Licensing Policy (HELP) - that allows for Open acreage system of bidding with marketing and pricing freedom among other incentives. New players that entered the fray through the Discovered Small Field Policy (DSF) and Open Acreage Licensing (OALP) bid rounds will provide the much needed thrust to explore the prospectivity of the Indian Sedimentary Basins.

The Indian government wants to double its exploration acreage to 0.5 Million square kilometers by 2025 and 1.0 Million square kilometers by 2030. The "No Go" area has been successfully reduced by 99%, allowing for exploration of an additional 1 Million square kilometers of Indias EEZ. To fully utilize the nations hydrocarbon potential, this is a

crucial step.

Government also brought in policy to incentivize greater recovery from our hydrocarbon producing assets through the Enhanced oil recovery (EOR) Policy. Introduction of new pricing policy for domestic natural gas with linkage to international crude price is a progressive measure to attract investment in the domestic hydrocarbon industry. Some key issues that merit attention at this point are the moderation of OID Cess and royalty rates and coverage of crude oil and natural gas under GST.

4. Performance

For FYRs.3, Oil & Gas production of ONGC Group, including PSC-JVs and from overseas Assets has been 53 MMTOE (against 55.71 MMTOE during FYRs.2).

Proved reserves

Financial performance: ONGC (Standalone)

Notes:

i. Change in Inventory Turnover Ratio

The Inventory Turnover ratio for FY 2022-23 is 19.22 against 13.51 in FY 2021-22 i.e. increase of 42.26%, which is mainly due to increase in revenue from operations by Rs.51,719 Million and decrease in average inventory by Rs.75 Million. The increase in

ii. Change in Interest Coverage Ratio

The Interest Coverage ratio for FY 2022-23 is 194.88 against 142.18 in FY 2021-22 i.e. increase of 37.07%, this is mainly due to increase in Profit Before Interest & Tax (PBIT) by Rs.89,301 Million the same is parity offset by marginal increase in interest cost during the year by Rs.46 Million. The increase in PBIT is mainly due to increase in revenue from operations by Rs.51,719 Million which is partly offset by increase in statutory levies by Rs.73,520 Million as the levies are charged on ad-valorem basis.

iii. Change in Current Ratio

The Current ratio for FY 2022-23 is 1.29 against

0.98 in FY 2021-22 i.e. increase of 31.63%, this is cumulative impact of increase in Current Assets by Rs.71,512 Million and increase in Current Liabilities by Rs.5,485 Million. The increase in Current assets is mainly due to increase in Other bank balance by Rs.13,707 Million, Other financial assets by Rs.2,469

Financial performance: ONGC (Group)

Million and Inventories by Rs.,581 Million which is partly offset by decrease in Other non-financial assets by Rs.4,284 Million. The increase in Current liabilities is mainly due to increase in borrowings by Rs.2,689 Million and Other financial liabilities by Rs.3,395 Million which is partly offset by decrease in Provisions by Rs.4,142 Million.

iv. Change in Net Profit Margin

The Net Profit Margin for FY 2022-23 is 24.97% against 36.53% in FY 2021-22 i.e. decrease of 31.65%. This is cumulative impact of Increase in Revenue from operations by Rs.51,719 Million and decrease in Profit After Tax (PAT) by Rs.4,768 Million. The decrease in Profit After Tax (PAT) is mainly on account of Exceptional items of Rs.2,351 Million during FY 2022-23 and also on account of increase in tax expenses by Rs.08,321 Million due to adoption of lower tax regime as per section 115BAA of income tax act 1961 during FYRs.2.

5. Strengths & Weaknesses

India, being still under-explored country, also has vast frontier areas to explore and ONGC is ideally poised to reap this advantage. The Company also enjoys other strengths like increasing demand

for energy, a young population and growing urbanisation. ONGC is assured of a market for its primary products for at least two-three decades.

ONGCs strength lies in its integrated operations across the entire oil and gas value chain. The

company has established its presence in key areas such as exploration, production, refining, marketing, and distribution. ONGC possesses an extensive resource base including trained, dedicated and experienced manpower that forms a robust groundwork for its exploration and production endeavours.

In contrast, the countrys limited prospectivity has been a persistent challenge for ONGC in terms of expanding its operations, and it remains a longstanding impediment. Additionally, ONGC encounters a range of challenges associated with mature fields, these challenges encompass declining production rates, elevated operating costs, intricate reservoir characteristics, environmental factors and technological advancements.

Similarly, the underdeveloped state of the oil field services sector and limited access to technology have acted as significant obstacles in advancing the oil industry within the country. However, ONGC maintains a strong belief that ongoing reforms and the substantial scale of Indias energy market will surmount these challenges, leading to India becoming a thriving hub for the oil field services industry.

Throughout its existence, ONGC has cultivated considerable expertise across multiple domains within the oil and gas sector. The presence of MRPL and OPaL in our petrochemicals business further strengthens our downstream portfolio, adding substantial weight to our overall offerings. The Chemicals and Petrochemicals sector is expected to emerge as a significant catalyst for demand within the Oil industry in the next 10-15 years.

Furthermore, despite ONGCs efforts to diversify its operations into downstream activities like refining and petrochemicals, its level of integration in the downstream sector remains relatively limited. This constrained downstream integration can result in decreased value addition and expose the company to uncertainties and fluctuations in the market.

Moreover, ONGCs profitability and strategic decisions are heavily influenced by changes in regulations and pricing mechanisms. These factors have the potential to significantly impact ONGCs financial performance and shape its strategic choices in response to evolving market conditions.

6. Opportunities and Threats

the recent volatility has been unprecedented. Cycle times between highs and lows have shortened, and switching to fuels and energy sources with lower carbon emissions has added yet another level of complexity for oil and gas companies.

After rising supplies coincided with a noticeable slowdown in the growth of oil demand in advanced economies, benchmark crude oil prices are back at pre-war levels and refined product cracks have now fallen off all-time highs. Additionally, in 2022, two consecutive emergency stock releases by IEA member countries and an unprecedented reorganization of global trade flows allowed industry inventories to rebuild, reducing market tensions¹⁹.

According to IEA, in current policy settings, as the energy transition intensifies, growth in the global oil demand is predicted to significantly slow between 2022 and 2028. While there will soon be a peak in oil demand, there will still be growth in overall consumption due to rising petrochemical feedstock and air travel. The global oil demand will increase by

5.9 mb/d from 2022 levels to 105.7 mb/d in 2028²⁰.

Current market dynamic places pressure on oil and gas producers to continue meeting the rising energy demand for oil and gas as well as to respond to investors and consumers desire to reduce investment risk and carbon footprints in order to address the escalating effects of climate change.

Global cumulative oil demand growth by fuel, 2022-2028

Over the coming years, natural gas has a great deal of potential to accelerate the switch to clean energy. The industry keeps making great strides toward lowering carbon and methane emissions from the extraction of natural gas. At the same time, an increasing number of LNG export facilities are being built and going online, allowing for greater global mobility of exports.

The petrochemical sector will remain the key driver of global oil demand growth, with liquified petroleum gas (LPG), ethane and naphtha accounting for more than 50% of the rise between 2022 and 2028 and nearly 90% of the increase compared with pre-pandemic levels. Petrochemicals will continue

to grow at a steady rate, unlike other industries, despite the fact that there are few opportunities to improve efficiency and that efforts to promote the circular economy only slightly slow the industrys growth.

According to Rystad Energy, petrochemicals accounts for around 16% of global oil demand. Of the total liquids consumed, around 40% is burnt while 60% is used as feedstock. Therefore, only a share of oil demand contributes to increasing CO₂ emissions. Even so, it remains one of the hardest sectors to decarbonize, due to the current lack of viable substitutes for ethane, liquefied petroleum gas (LPG) and naphtha feedstocks. Oil demand in the petrochemical sector is set to grow in the short and medium term before stabilizing and plateauing at around 18 Million bpd in Mean (1.9?Rs.) scenario²¹.

Energy transition has also gaining momentum, 2022 has seen the largest increase in renewable energy capacity to date - the world added almost 295 gigawatts (GW) of renewables, increasing the stock of renewable power by 9.6% and contributing an unprecedented 83% of global power additions. By the end of 2022, renewables accounted for 40% of global installed power capacity.

The demand for effective charging infrastructure and energy storage solutions is being driven by the growing uptake of electric vehicles and electric heat pumps. According to Rystad Energy, EVs replaced

500,000 bpd of gasoline in 2022 and will account for 20% of all passenger vehicles by 2030, putting

4.5 Million bpd at risk. Oil demand for passenger vehicles will reach a peak of nearly 28.5 Million bpd in 2025 under the Base Case (1.9?Rs.) scenario. In 2050, it rapidly declines to 7.5 Million bpd.

According to the most recent resource reassessment study, the combined resource potential from all category basins was estimated to be around 42 BTOE. Out of this, about 12 BTOE have already been discovered, with an estimated 30 BTOE still to be found. Through OALP and DSF, ONGC will have the chance to take the initiative in acquiring promising areas for oil and gas exploration and to increase the size of its reserve base. In order to identify such areas in various basins, ONGC has already started and is continuing its efforts in this area.

ONGC declared eight oil and gas discoveries (five on-land and three offshore) during FYRs.3. During FYRs.3, accreted 40.62 mMtOE of 2P reserves from ONGC operated areas in India. Reserve Replacement Ratio (RRR) from domestic fields was 1.01 with respect to 2P reserves. Your Company has maintained Reserve Replacement Ratio (2P) of more than 1 for the 17th consecutive year.

ONGC has maintained its continued thrust on development of new fields and redevelopment of matured fields. As on today, twenty four major projects (over Rs.,000 Million) are under implementation with a total cost of around Rs.1,3000 Million and envisaged lifecycle gain of ~94 MMTOE of oil and gas.

The government has agreed to reduce the ‘No Go area in Indian sedimentary basins, thereby unlocking an additional 1 Million sqkm of Indian basins for new exploration. This presents a significant opportunity for harnessing the hydrocarbon potential in these areas, and ONGC is highly ambitious about this prospect.

The year 2023 seems to hold both opportunity and uncertainty for the oil and gas industry. To deliver cost-effective and dependable energy sources, careful process automation and optimization, digital transformation, and continuous operation improvement will be essential. Finding a new equilibrium between safety, affordability, and sustainability is the focus of attention. Operational excellence, a cornerstone of oil and gas operations for years, will become even more crucial in the coming year. As labour remains scarce and investment is cautious, oil and gas companies will need to do more with their current assets, operations, and workforce while using fewer people.

The energy market has undergone a significant readjustment as a result of economic, geopolitical, trade, policy, and financial factors, underscoring the urgent need for increased investment and capital restraint.

7. Risks and Concerns

The global energy industry is currently experiencing a pivotal moment, as various sectors undergo a transition. However, one certainty is that the ongoing change is relentless, and the status quo will no longer be sustainable. Similar to how coal was displaced by oil and gas in the past, renewable energy sources and emerging clean technologies are poised to alleviate much of the reliance on fossil fuels in the coming years and decades.

In its recent Oil market report IEA has outlined that, growth in world oil demand is set to lose momentum over the 2022-28 forecast period as the energy transition gathers pace, with an overall peak looming on the horizon. Led by continued increases in petrochemical feedstocks, total oil consumption growth will remain narrowly positive through 2028 as usage rises to 105.7 mb/d, 5.9 mb/d above 2022 levels. Road transport fuel consumption growth, which has historically been the main driver of oil demand, is forecast to go into reverse from 2025 and will only narrowly surpass its pre-crisis high point.

Spending on exploration was more severely impacted by investment cuts than other areas. With less than 5 billion barrels discovered, conventional oil discoveries in 2021 were at their lowest level since 2016, nearly matching a 50-year low and falling short of the annual average over the previous ten years, according to Rystad Energy. Although discoveries in 2022 slightly increased to 6 billion barrels, they were still far below historical averages²².

The better outlook for gas markets in 2023 should not serve as a deterrent from taking steps to reduce potential risks because there is no assurance that there wont be future volatility. In 2023, the worlds gas supply is expected to remain constrained, and an unusually wide range of uncertainties could affect the global balance.

Oil and gas operations currently account for 15% of the worlds energy-related emissions and the industry is under pressure to play a bigger role in energy transitions. Over six-year forecast, the worlds oil production is expected to grow by 5.8 mb/d while the Scope 1 and 2 emissions intensity of global upstream oil operations is set to fall by around 15%, leading to an absolute reduction in emissions of 11%.

ONGC is also concentrated on leveraging its vast experience in addressing enormous and complex challenges to advance solutions at scale in the economys highest emitting sectors. By switching from conventional production to resource efficiency and cleaner energy, ONGC is quickening the transition to a clean and green future.

The company has been a pioneer in adopting various de-carbonization levers resulting in significant amount of emission reductions over the years. Your Company is presently in the process of creating a roadmap for opportunities in renewable energy and low-carbon sectors. Your Company has plans to significantly increase its spending on green initiatives to reduce its carbon footprint as part of a broader effort to achieve net-zero for Scope-1 and Scope-2 emissions by 2038. ONGC is also pursuing opportunities in Renewables, Green Hydrogen and Green Ammonia. The Company is actively integrating technology into every aspect of its operations to ensure greater energy efficiency, increased productivity, and improved safety performance.

Numerous factors, including the industrys growing emphasis on the energy transition, rising inflation, government regulations, geopolitical concerns, and more recently, a surge in commodity prices and an increased focus on energy security have an impact on oil companies capital planning strategies. High oil prices increase the risk of less capital discipline, which lessens the focus on new opportunities and causes businesses to spend more on their core businesses.

ONGC, the leading E&P NOC, is actively pursuing exploration programs to expand its reserves and explore new hydrocarbon-bearing areas. However, environmental and regulatory issues pose risks of unexpected delays. Streamlining clearance processes can facilitate efficient resource utilization and timely outcomes in the oil and gas sector.

Operational safety remains a crucial concern, as accidents,spills,and incidents canresultinsignificant reputational damage, legal consequences, and financial liabilities for companies operating in this sector. ONGC has implemented updated OISD Standards to enhance its contingency combat

capabilities, resulting in favourable insurance premiums for its offshore assets. Operational safety is crucial, especially with future operations involving challenging terrains and geologies. A strong HSE framework is essential to ensure safety in upstream operations. Project "Parivartan" was introduced in May 2022 as part of ONGCs journey of CHANGE, which aimed to strengthen the organizations safety culture and pursue strategic HSE goals in effective manner.

Risks related to the environment and regulations are also a major concern for the sector. Oil and gas companies must adapt and make investments in sustainable practices due to rising scrutiny and regulations relating to carbon emissions, climate change, and environmental preservation. In addition to its operational focus, ONGC is committed to making a positive impact through CSR initiatives. An example of this is the companys community outreach and support efforts during the pandemic in its operational areas.

The E&P sector also faces challenges in retaining experienced professionals due to limited expertise and potential difficulty in attracting new talent. Diversification and technology integration can address these concerns and attract the younger generation by offering unique opportunities.

8. Energy Strategy 2040

ONGC had adopted Energy Strategy 2040 as its strategic blueprint for future in 2019. ‘Energy Transition was one of the fundamental drivers of the roadmap and, going along, it is clear that this transition is going to play an increasingly stronger role in charting out the future policies and strategies.

ONGC remains committed to expand its production from both domestic and overseas operations to 110 MMTOE by 2040. ONGC is also in the process of sourcing new technologies and partnerships for harnessing these fields as it remains focussed on shorter business cycles. ONGC has inked MoUs with several organizations like ExxonMobil & Chevron for deep-water explorations, frontier areas and geologically challenging and difficult plays in Cat-I, II and III of Indian sedimentary basins.

Your Company had 1.62 lakh square kilometres of acreage, is looking to take the acreage to 5 lakh square kilometers by acquiring one lakh square km every year, spending Rs.0,000 crore annually on exploration by 2025. In upcoming OALP bid rounds, ONGC is optimistic and believes it will receive a significant exploratory acreage.

ONGC aims to meet its objectives such as de- risking of portfolio against long term disruptions

and reducing carbon footprint. The company is planning to scale up electricity generation from renewable sources from 189 MW to 10 GW by 2030.

Petrochemicals are rapidly emerging as the primary driver of global oil consumption, with the industry projected to contribute over a third of the growth in oil demand by 2030, according to the International Energy Agency. ONGC aims to capitalize on this trend, with plans to substantially expand its chemical and petrochemical portfolio from the current 4.2 MMTPA to 8 MMTPA by 2030.

Your Company is well poised to expand its capacity through the expansion and green-field activities in progress at its subsidiary units. OMPL has successfully amalgamated in MRPL in order to increase synergy in downstream business. MRPL and OPaL are strongly engaged in the diversification plan from oil to the petro-chemical sector. ONGC is also partnering with players to explore opportunities in the Oil to Chemical (O2C) and Oil to Petrochemicals (O2P).

Your group Company has plans to expand its footprints in CGD & regas through group entities and has presence in 23 Geographical Areas (GAs) across 12 states. A 5 MMTPA LNG regasification terminal at Chhara port (Gir Somnath District) has achieved mechanical completion.

9. Outlook

In spite of the difficult economic climate and business environment, ONGC delivered another outstanding performance, posting its highest-ever standalone PBT of Rs.03,953 Million and PAT of Rs.88,289 Million, the highest among Indias CPSEs. This would have been even higher, but during Q4 of FY 23, the Company reviewed the disputed Service tax (ST)/ GST on royalty and made a provision of Rs.21,074 Million. Despite this, we are still one of the highest dividend paying companies in the nation, having paid our highest dividend ever for the fiscal year 2023 of Rs.41,528 Million (Rs.1.25 per share).

The iconic ONGC "Sagar Samrat" offshore drilling rig was officially inaugurated as a Mobile Offshore Production Unit (MOPU) on December 23, 2022. Sagar Samrat MOPu is expected to increase ONGCs oil production by 6,000 barrels per day over the next few years. The first oil from the WO-16 cluster began to flow into MOPUs processing system, and dispatch to the onshore terminal was started.

cannot reduce its exploratory and production efforts, even though cost optimization and operational efficiencies are crucial tools in managing the effects of low prices. The urgent imperative of higher domestic supplies are understood and accordingly efforts had been stepped up with focusing on three key areas: Deepwater exploration, monetizing the discovered fields on fast-track and enhancing production from producing fields through enhanced oil recovery and improved oil recovery techniques. There is significant traction on the development of new fields as well as new schemes for maximizing recovery in mature areas.

During 2022-23, completed 461 wells against target of 481 wells, the cycle speed achieved during the year is highest ever since inception. On Capex front, ONGC will continue to invest around Rs.00,000 Million per year aimed at development & redevelopment of Oil & Gas Fields. 24 major projects (above Rs.000 Million) are presently under implementation with a total project cost of around Rs.21,000 Million and envisaged oil and gas gain of about 94 MMTOE.

Among these is ONGCs mega offshore deepwater project in East Coast, Cluster-2 Development of KG-dWn-98/2. U Field of this project has been fully monetised with the opening of third well U-1-A. Current gas production is ~ 1.5 MMSCMD i.e. 0.5 BCM, with the completion of this project it is expected to substantially enhance the Gas portfolio of ONGC.

Further, your Company, supported by Governments policy support, is strongly pursuing improving recovery from existing areas. ONGC has been consistently expanding its EOR portfolio. 33 ER Pilot/Preliminary Screening reports submitted to DGH till date for Oil Fields. 17 ER Pilot already approved (Phase-I), 3 are not approved and 11 Under Approval (Phase-II). Two fields Gandhar GS-9 & Gandhar GS-11are under feasibility Study. During the year, MH asset executed 1 EOR pilot low salinity water injection in offshore and Onshore assets Ahmedabad and Mehsana executed Sanand ASP pilot & Bechraji commercial polymer respectively.

10. Internal Control Systems

Your Company has institutionalized robust internal control systems to continuously monitor critical businesses, functions and operations; particularly field operations. The top management of your Company monitors and reviews various activities on continuous basis. A set of standardized procedures and guidelines has been issued for all the facets of activities to ensure that best practices are adopted and those percolate even up to ground level.

Your Company has a dedicated Performance Management and Benchmarking Group (PMBG) which monitors the performance of each business unit against the Key Performance Indicators (KPIs) defined in the Performance Contracts between the top management and the Key Executives. As part of its push for systemic transformation and strengthening of control systems, your Company has placed adequate emphasis on institutionalization of tools, practices and systems that facilitate greater operational efficiencies and workplace productivity. Your Company has introduced E-Grievance handling mechanism for quick redressal of grievances of its various stake-holders.

Your Company has dedicated Internal Audit (IA) group which carries out audits in-house. At the same time, based on requirement, specialized agencies are engaged to carry out audit in the identified areas. Statutory auditors are appointed by Comptroller and Auditor General (CAG) of India for fixed tenures.

Third party safety audits are conducted regularly for offshore and onshore installations by established national and international HSE agencies such as Oil Industry Safety Directorate ("OISD"), an organization under the control of the MoPNG, which issues safety guidelines. Further, subject to the safety regulations prescribed by the Directorate General of Mines and Safety (DGMS), each work centre has teams dedicated to HSE, which execute the safety guidelines prescribed by OISD as well as DGMS. HSE teams are also responsible for obtaining necessary licenses and clearances from the State Pollution Control Boards.

All transactions in the Company are carried out on recently upgraded SAP S4-HANA based ERP business portal. Proper and adequate system of internal control exists to ensure that all aspects are safeguarded and protected against loss from unauthorized use or disposition and that each transaction is authorized, recorded and reported. The system further ensures that financial and other records are fact-based and reliable for preparing the financial statements.

Outcome Budget analysis: Your Company has established the linkages of budget expenditure with anticipated outcomes to have clear sight on the future growth orientation parameters. Expenditure proposed in Budget towards Development drilling and creation of Capital Facilities is co-related with the incremental gain in Oil and Gas production targets for next 5 years. Some of the other parameters included for outcome budget analysis are profitability variation analysis, budgeted

Balance Sheet and Cash Flow, sensitivity analysis on profitability and cash flow as a result of changes in Crude Price and Exchange Rate.

11. Human Resource Development

The most valuable asset is our workforce, which has helped the company to achieve unmatched excellence in the energy sector. ONGCs HR policies are in line with its vision to lead the integrated energy industry globally as a strategic business partner. Your Company believes that best-in-class HR practices should be continuously improved and adopted.

The foundation of ONGCs expansion and value creation is its workforce. As of 31 March 2023, ONGC had 25,993 employees listed on its rolls. ONGC employees ensured Companys outstanding performance all year long through their commitment, talent, and sense of teamwork.

The talent management strategy of Your Company is centered around workforce planning and talent acquisition, performance management, learning and development, career growth, succession planning, leadership development, and extending the best employee facilities, welfare benefits, and work environment. Its goal is to create an ideal and competent workforce to meet business needs.

For the purpose of creating and fostering a never- ending pipeline of energy leaders who can guide the business toward sustained growth, ONGC has put strategic development interventions in place across executive levels. It includes the prestigious Leadership Development Program, Advanced Management Program, and Senior Management Program for Mid-level and Senior-Level Executives.

Building the workforces capacity is a top priority, and dedicated Institutes are responsible for meeting our employees needs for learning and development so they can successfully take on the challenges of the E&P industry in a constantly shifting business environment. For the purpose of enhancing the skills of its energy professionals, ONGC also has partnerships with a number of national and international institutions, agencies, and business schools.

Learning Management System (LMS) is one of the landmark initiatives undertaken by ONGC in recent times. With the aim of improving the knowledge and abilities of executives, ONGC Academy, the Companys internal training center, on-boarded Learning Management Software from the Ministry of E&IT and the National Programme on Technology Enhanced Learning (NPTEL) created by seven

Indian Institutes of Technology. The systems various components have all undergone successful testing and rollout.

ONGC has partnerships with numerous national and international institutions, agencies, and business schools. During the year 2022-23, 19,846 executives and 5,506 non-executives were imparted training in relevant domains, spanning 66,806 executive and 13764 non-executive training days.

ONGC implemented a wide range of employee engagement initiatives in FYRs.3 in an effort to promote a culture of open communication, teamwork, innovation, and excellence. More than 30 People Connect Sessions were held across work centers with a focus on engaging the younger generation. A 2-day Youth Meet was organized in August 2022, to bring together about 250 young officers from different work centres in a live and energetic physical setup for experiencing, firsthand, the ONGC corporate ethos.

In ONGC the formal mentoring initiative was introduced in 2008. ONGC management reintroduced the mentoring framework in 2021 with a perspective to create an informal social learning opportunity. In 2022-23 approximately 650 new mentors and around 600 mentees have been initiated into the mentoring program.

Annual ONGC Business Games was successfully conducted to hone competencies in a competitive scenario under simulated business constraints. During FYRs.3, a total of 217 teams and 868 executives participated in these games.

Fun Team Games were also conducted for E0 and below level employees as a capacity building and employee engagement initiative to enhance coordination, cooperation, & communication wherein more than 380 employees participated in the event.

ONGC is an equal opportunity employer. ONGC adheres to constitutional and government guidelines on creating opportunities for employees and promotes employee development, irrespective of their caste, creed, race, gender, specially-abled status etc. Employees are empowered with best in industry support and opportunities, enabling them to excel in their professional and personal lives.

The Honble Minister of Petroleum and Natural Gas & Housing and Urban Affairs inaugurated the fourth Oil and Natural Gas Corporation Limited (ONGC) Para Games in Thyagaraj Sports Complex in August 2022. 275 specially-abled employees from eight central oil and gas public enterprises participated

in the 4th ONGC Para Games being held during 2-4 August 2022. 192 ONGCians were among the participants.

ONGC being a responsible and transparent organization has a well-defined mechanism in place to deal with the RTI applications received under the Right to Information Act 2005. In compliance of Government directives, your Company is successfully processing the online applications under the Act. Concerted efforts are made for promotion and implementation of Official Language

Your Company continued its support for development of sports in the country by providing employment opportunities to sportspersons, sports scholarships in 22 sports were awarded to 214 budding talents Your Company sponsored various sports associations/ federations/ sports bodies for organizing sports events as well as developing sporting infrastructure.

The endeavours of your Company, towards Human Resource development, are well recognized in the industry, ONGC was recognized as one of the best employers in India among other nation-builders by the Great Place to Work (GPTW) on 14 June 2022.

12. Environmental Protection and Conservation, Technology Conservation, Renewable Energy developments, Foreign Exchange Conservation

As the specter of climate change looms large, causing devastating impacts on lives, livelihoods, and the overall well-being of humanity, it becomes imperative for nations to decouple their economic growth from environmental harm. Encouragingly, the Government of India has already taken significant steps towards sustainable development, particularly in the realm of green energy. The "Panchamrit" pledge, made by Prime Minister at the historic COP26 summit, demonstrates Indias commitment to promoting sustainable growth while addressing climate change.

Your Company is committed to ensuring that our business growth does not harm the environment. Your Company has implemented various measures to decouple environmental footprint to alternate sources of energy. As a responsible corporate citizen, ONGC works to promote and put into practice energy-efficient measures as well as make use of environmentally friendly technologies. Your Company continuously strives to mitigate the environmental impact that may arise from its business activities such as exploration, drilling & production, by investing in state-of-art technologies, effluent & solid waste management, environment

monitoring and reporting, bio-diversity conservation efforts and up-gradation and sustenance of environment management systems.

To effectively manage carbon emissions and promote sustainability, a dedicated group - Carbon Management and Sustainability Group (CM&SG) oversees emission reduction initiatives and ensures compliance with relevant regulations. Further, adherence to well-defined policies such as the Integrated Quality, Health, Safety, and Environment Policy, as well as the E-Waste Policy, improves environmental sustenance.

In line with international guidelines and industry standards, the Company regularly measures, monitor, and report Scope 1 and Scope 2 emissions to achieve net-zero emissions for Scope 1 and Scope 2 by 2038.

ONGC has created and implemented strong climate change strategies and is developing a roadmap that will help the Company in transition. Companys installations and plants are ISO 50001 certified and also follows guidelines set by esteemed organizations such as the World Business Council for Sustainable Development (WBCSD), World Resource Institute (WRI), and GHG Protocols. Additionally, we adhere to sector-specific guidance outlined in the Compendium of Greenhouse Gas Emissions Estimations Methodologies for the Oil and Gas industry developed by the American Petroleum Institute (API). Through these concerted efforts, ONGC strives to minimize environmental impact of its operations and contribute to a sustainable future.

Initiatives of your Company towards Technology Conservation, Renewable Energy developments and Foreign Exchange Conservation are detailed in Boards Report.

13. Corporate Social Responsibility (CSR)

Initiatives taken by your Company towards CSR are detailed in CSR Report.

14. Cautionary Statement