New Delhi: India’s largest oil and gas explorer, Oil and Natural Gas Corp. Ltd (ONGC), said net profit fell 3% in the fiscal year ended March as the state-owned company’s share of subsidizing the sale of fuel below cost swelled.
Net profit for the year fell to Rs16,126 crore on a 6% increase in revenue to Rs63,949 crore in the year, said ONGC, which declared a dividend of Rs32 per share including an interim payout of Rs18. The explorer’s share of subsidizing fuel sales rose to Rs28,225 crore.
For the three months ended 31 March, net profit fell 16% to Rs2,207 crore on a 12% decrease in revenue to Rs13,815 crore. The company’s crude oil production also declined by 6.57% to 6.460 million tonnes in the fourth quarter.
Poor results: ONGC chairman and managing director RS Sharma. Rajkumar / Mint
“The subsidy payout had a Rs15,798 crore impact on the net profit in the last year,” said chairman and managing director R.S. Sharma.
Profit also declined for reasons such as higher exploration commitments, production setbacks and high rig rates.
The state-run explorer said its gross and net realisation per barrel of crude dropped by 52.32% and 12.60% to $47.85 per barrel and $43.40 per barrel, respectively. Extreme volatility has marked the crude oil price, which reached a record $147 per barrel in July 2008 and has since fallen by more than half.
ONGC’s share of subsidies to oil marketing companies such as Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL), which lose money on account of selling petrol, diesel, domestic cooking gas and kerosene below cost price, was Rs852 crore in the fourth quarter.
Under-recoveries for the oil marketing firms reached Rs1.03 trillion in 2008-09. With crude oil prices at $68.78 (Rs3,366) per barrel on Wednesday, OMCs are expected to post a loss of Rs40,000 crore in the current fiscal.
“Results have been lower than the street expectations. The subsidy burdens have been very ad-hoc. The company had told us that there will be no subsidy burden in the fourth quarter. Government later announced it,” said Deepak Pareek, a Mumbai-based research analyst at Angel Broking Ltd.
In addition, the company also lost around Rs3,000 crore on selling natural gas at the price set by the government of $1.93 per million British thermal units, or mBtu. The price that company commands is less than half the $4.205 per mBtu rate fixed for gas from Reliance Industries Ltd (RIL) D6 fields in the Krishna Godavari basin.
“Having multiple pricing is not a good scenario...this philosophy is getting acceptance at the policy making level,” Sharma said. “I would not like to speak on RIL’s behalf but as a major producer, I must clarify that there is a decision dated May 2005 at the CCEA (cabinet committee on economic affairs) level that all new discoveries should be sold at market price.”
RIL, controlled by Mukesh Ambani, has been fighting a case with Reliance Natural Resources Ltd (RNRL), owned by his estranged younger brother Anil Ambani, over the gas price. The Bombay high court has directed RIL to forge a suitable arrangement within a month to sell natural gas to RNRL at a price 44% lower than the government-stipulated price.
RIL is also fighting a separate lawsuit in the same court over the price at which it will supply 12 mscmd (million standard cubic metres a day) of gas to NTPC Ltd’s Kawas and Gandhar facilities for 17 years. NTPC claims the two agreed to $2.34 per mBtu. RIL wants to sell at the $4.2 per mBtu price set by the government.
ONGC, meanwhile, said it does not believe that a price band suggested by India to reduce volatility in the crude oil market can be implemented. Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. The proposal has won the backing of Nigeria, Russia, France, Japan, South Korea and the US.
“As a producer, ONGC would like to have some stability. However, price band is a wish list. It is very difficult to implement if prices are driven by derivative market and speculation...,” Sharma said.
Then finance minister P. Chidambaram, the present home minister, proposed the oil price band at a meeting of the Organization of Petroleum Exporting Countries (Opec) in Jeddah, Saudi Arabia, in June last year. Chidambaram blamed “unregulated over-the-counter markets and futures trading” for the then rocketing oil price.