Third quarter net profits at India’s largest exploration and production firm, Oil and Natural Gas Corp. Ltd, fell 6.4% to Rs4,367 crore from a year ago.
The company’s performance suffered primarily due to the growing subsidy burden— Rs6,080 crore for the quarter, 176% higher than in the same period last year—it had to asborb with domestic fuel prices being kept pegged down, even as global crude prices spiked. In addition, the appreciating rupee meant that the company earned less for its oil sales, which are priced in dollars.
“There is a requirement for price correction. I feel prices are likely to be increased as per my assessment based on the fundamentals. The government should also take a call on the ad valorem component. If the same position continues profitability will be impacted,” R.S. Sharma, chairman and managing director of the company, told reporters.
Company officials, who did not wish to be identified, estimate that net of the subsidy burden, profits in the three months to December would have aggregated Rs8,029 crore.
Similar demands have been made by oil marketing companies such as Indian Oil Corp., Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd, which have projected Rs71,808 crore in losses on fuel sales in 2007-08 if prices and duties are not revised. These companies lose Rs9.20 per litre on petrol, Rs11 per litre on diesel, Rs331 per liquefied petroleum gas (LPG) cylinder and Rs20 per litre on kerosene. However, the second meeting of the group of ministers to decide on a solution to this vexing issue could not be held on Monday. And no new dates have been fixed for a meeting, since petroleum minister Murli Deora is to leave for a New Exploration Licensing Policy roadshow in London on Tuesday, and is expected back only on 27 January.
Though there was a minimal increase in crude oil production, the rupee appreciating 12.3% reduced the exploration company’s turnover by 2.6% to Rs15,218 crore compared with the same period last year.
Oil industry analysts concurred that ONGC’s numbers would have been better in the absence of subsidy burden sharing. Ravi Mahajan, partner at accounting firm Ernst and Young, said, “The company has suffered a big hit on account of the sharing of under-recoveries. The consensus on the pricing issue has to be achieved at the earliest, as only then there will be some kind of breather for the companies across the hydrocarbon value chain, be it upstream or downstream.”
ONGC produces 685 million tonnes (mt) of crude and 375 billion cu. m of gas from its 115 fields and plans to invest Rs18,000 crore in 2008-09 out of its internal accruals.
In another development, Mangalore Refinery and Petrochemicals Ltd, a unit of ONGC, on Monday entered into an agreement with Shell Aviation, part of the Shell group of companies in India, to supply aviation turbine fuel at the Bangalore and Hyderabad airports.
ONGC stock fell 7.89% on the Bombay Stock Exchange to close at Rs1,114.05. The Sensex fell by 7.41% to close at 17,605.35 points.