New Delhi: State-owned explorer Oil and Natural Gas Corporation’s cash reserves have been depleted by more than 90% over the past year, with the Narendra Modi government using it as a milch cow to finance the Centre’s fiscal deficit and to bail out the beleaguered Gujarat State Petroleum Corporation (GSPC).

The public sector explorer’s cash reserves have dropped to Rs 1,000 crore from Rs 13,000 crore a year ago, leaving the PSU hard-pressed to finance its capital expenditure plans of over Rs 32,000 crore and repay debts of nearly Rs 25,000 crore. Much of this debt, incidentally, was raised last year to buy out the government’s stake in state-owned refiner Hindustan Petroleum Corporation Ltd (HPCL).

Exploration of oil and gas is a risky business. The company has to spend a huge amount of money hunting for hydrocarbon reserves and investment yield returns only when it finds commercially exploitable reserves. Otherwise, it has to write off the expenditure.

Not surprisingly, the shrinking cash reserves have left ONGC veterans worried. “ONGC is heavily leveraged now. It’s important for exploration companies to have a sizeable cash balance as a buffer. It’s a high-risk business,” Aloke Kumar Banerjee, ONGC’s former finance director, told Bloomberg in an interview.

In August last year, ONGC picked up 80% stake in GSPC’s KG basin gas block for Rs 7,738 crore. Later, it also bought out the government’s 51.11% stake in HPCL for Rs 36,915 crore.

Questions have been raised over ONGC’s decision to pick stake in GSPC’s KG basin block given the widespread doubts over the field’s extractable reserves.

In 2005, Modi, the-then Gujarat chief minister, had announced that the GSPC’s KG basin block had 20 trillion cubic feet (tcf) gas. But it later turned out that the proven reserves were much less than what Modi had claimed.

Even the national auditor questioned GSPC’s claims on extractable reserves of the block. Eventually, it fell to ONGC to bail out GSPC.

Soon after, ONGC was asked to acquire the government’s stakes in HPCL. While there are doubts over the benefits that would accrue to ONGC from the HPCL takeover, the proceeds that flowed to the government from the stake sale helped it easily hit its disinvestment target in 2017-18.

But one thing is clear: ONGC is now in a financially tight spot. With cash reserves depleted, the PSU is likely to have hard time mobilising resources to fund its expenditure plans.