Oil and Natural Gas Corp. Ltd (ONGC) posted a 6% increase in profit for the quarter ended September, dragged down by a sharp 87% year-on-year surge in depreciation, owing to write-offs of dry wells.

Such write-offs usually tend to be concentrated in the second half of the fiscal.

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Net profit rose to around Rs 5,390 crore compared with a 20% increase in total operating income to Rs 18,430 crore. Analysts attributed this growth to the full impact of the deregulation of petrol prices and the increase in APM (administered price mechanism) gas prices (for the fuel produced from government-nominated blocks). In June, APM gas prices were brought on a par with that from the D6 block of the Krishna-Godavari basin. ONGC said it benefited from this to the tune of Rs 1,760 crore in revenue.

Net realizations for the quarter stood at $62.75 (Rs 2,792 today) per barrel compared with $56.42 per barrel last year. Net realizations have improved compared with the June quarter as well. The company incurred a subsidy burden of Rs 3,020 crore against Rs 2,630 crore last year.

ONGC’s operating profit margin widened by 288 basis points to 61.43% from 58.55% last year, as other expenditure declined and employee costs grew at a slower pace. One basis point is one-hundredth of a percentage point. Operating performance appears strong when compared with the June quarter, when margins declined by about 500 basis points to 59%.

ONGC’s stock has outperformed the Bombay Stock Exchange’s benchmark Sensex and BSE Oil & Gas index since the beginning of the fiscal. But further appreciation in the near term appears limited. Deepak Pareek of Angel Broking Ltd says, “Most of the positives seem to be factored in the stock price at present. The next positive trigger would come in the form of diesel deregulation, which seems difficult at the current juncture.”

Oil secretary S. Sundareshan has indicated this week that right now, increases in diesel prices due to deregulation would not be fair, as it would push inflation up. Uncertainty regarding the timing of diesel regulation, declining production from ageing fields and a higher-than-expected rise in crude oil prices are some of the concerns surrounding the stock. Also, clarity on the subsidy-sharing mechanism for FY11 is yet to come.

Graphics by Yogesh Kumar/Mint

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