Perhaps the most sensible thing Goldman Sachs did in an otherwise poorly-researched report on ONGC [Get Quote] was to talk of 'corporate governance issues with cash withdrawals by promoter.'

For one, after Satyam [Get Quote], cash withdrawals by promoters are the surest way of getting great press coverage, and that's what this report got last week, as a result of which ONGC's stock took a beating.

Second, it's right.

Since 2003-04, the government has forced ONGC to sell oil to state-owned oil marketing firms at a discount of around Rs 85,000 crore (or Rs 850 billion; the 2008-09 profits will fall by 40-50 per cent as a result of this) -- this is clearly a huge hit to minority shareholders who were not consulted on the matter. It reduces earnings and, hence, market capitalisation in a very big way -- a calculation I'd done a year ago, showed the loss to ONGC's market capitalisation was around Rs 300,000 crore (Rs 3,000 billion), an amount that was higher than the actual market cap at that point in time.

That, however, is about the best the report has to offer. It talks of how ONGC's overseas acquisitions have been expensive -- while that does seem true of the $2.1 bn Imperial deal right now, things could look very different once prices go up again. In any case, most of ONGC's foreign acquisitions have given returns in excess of those assumed when they were bought.

More damning, it says ONGC's production profile is very poor compared to its peers, the reserves accretion is equally poor, and it has done little with the New Exploration Licensing Policy blocks it has got -- 'out of the 24 deepwater blocks awarded to ONGC from NELP III, ONGC has drilled just one well,' is the title of one slide in the report.

Further, it says 'ONGC has gone quiet after making a big splash about its KG Basin gas discovery. ONGC does not have deepwater capability and the target production date has been pushed out every year.' This, by the way, is much the same thing Mani Shankar Aiyar said when he was petroleum minister -- on the day of ONGC's AGM a few years ago, the Directorate General of Hydrocarbons had put out an ad which said ONGC had a zero track record of finding oil/gas under the NELP!

ONGC falling short of NELP targets is serious, but a few points must be made. For one, Goldman doesn't even mention the fact that Reliance Industries [Get Quote] Limited, ONGC's biggest competitor, has been pushing back its KG Basin output for a very long time as well. One of the reasons why ONGC is behind on its NELP commitments (each company has to commit to drill a number of wells in a fixed period) is that it has considerable non-NELP acreage as well. Once you take this into account, even the DGH admits, ONGC's track record improves considerably.

So, the company which drilled 'just one well' had, in 2007-08, reserves of 6.6 billion tonnes of oil and gas as compared to 1.6 billion for all its private sector counterparts. So what, Goldman Sachs will say, ONGC's been at it for decades while the private sector's been at it for just one decade.

So let's look at what ONGC's added in the last few years. In 2004-05, it added 137 million tonnes versus 180 million by all the private players, it was 137 versus 66 in 2005-06, it was 170 versus 194 in 2006-07 and 182 versus 152 in 2007-08 -- so, ONGC's no laggard by any stretch. And this does not take into account ONGC's special efforts which have helped stave off the inevitable ageing of its Bombay High fields -- it has already got an extra 40 million tonnes of oil from here and plans to get a total of 110 million tonnes by 2030.

In terms of production, it does around four times what the private sector firms do. ONGC's track record is marginally better than that of all the private sector firms put together when it comes to drilling exploratory wells -- in the case of development wells, it does four to five times what they do.

In terms of the reserve replacement ratio (the reserves added each year versus the oil taken out), ONGC's 1.32 in 2007-08 (1.94 if you add the foreign acquisitions) is more than comparable with ExxonMobil's 0.76, BP's 1.09, Petrobras' 1.31 but less than PetroChina's 1.89 (for some reason, Goldman Sachs' doesn't compare ONGC with the global majors). Ditto for its costs.

Despite all this, ONGC may still be a bad share to buy, especially if its profits can be eaten into at will by the government. But you'd expect an assessment by a leading brokerage house to present the facts in an unbiased manner.