Mumbai: India’s top energy firm, Reliance Industries Ltd, is expected to post a dip in quarterly profit on tighter refining margins, while leading oil producer ONGC is forecast to say profit fell on lower crude prices.
Reliance, the country’s largest listed company with a market value of $60 billion, began pumping gas from its vast, newly developed field off India’s east coast in April, which should help it offset shrinking refining margins in coming quarters.
Reliance, controlled by billionaire tycoon Mukesh Ambani, was producing 28 million metric cubic metres a day (mmscmd) of gas on 25 June from the Krishna-Godavari basin and aims to reach peak output of 80 mmscmd by December, which would double the country’s natural gas output.
The company struck a deal in February to absorb subsidiary Reliance Petroleum, giving it full control over the world’s largest refinery operation, in the western state of Gujarat.
“The increase in oil and gas production, and ramp up of production at the new refinery, should help Reliance post higher profit numbers in quarters to come,” said Deepak Pareek, a research analyst at Angel Broking.
Reliance Industries has been locked in a legal dispute over terms of a gas supply agreement reached in a 2005 family settlement with Reliance Natural Resources, controlled by Mukesh Ambani’s younger brother, Anil Ambani.
Analysts said Reliance’s gross refining margins (GRMs), a key measure of profitability, would have fallen to $7-$9.5 per barrel in the June quarter from $15.7 a year earlier, tracking the decline in Asia’s benchmark Dubai crack margin.
Regional refining margins declined mainly on anticipated lower demand for fuel products, with little sign of strong recovery given the fragile world economy, analysts said.
In a report on Thursday, Fitch said it expects Asian refiners to face cashflow pressures as new plants are commissioned in 2009 and 2010 at a time when regional demand for refined products is likely to fall despite economic growth in China and India.
State-run explorer Oil & Natural Gas Corp is expected to report a fourth consecutive quartely fall in net profit on Thursday, as crude prices declined sharply from the year earlier with the soured global economy curbing demand.
ONGC’s crude oil output has seen marginal decline in recent quarters, and Amit Shah, an analyst at BNP Paribas Securities, expects its oil production to be flat or fall by up to 1% for the fiscal year ending in March 2010.
“The concern is delay in execution. Despite having sizeable reserves, the translation to production has been slow,” he said.
Crude oil production in the March quarter fell to 6.48 million metric tonnes from 6.95 mmt a year earlier.
“Also, there is not much clarity as to how the subsidy-sharing formula as to petrol and diesel will work out,” said Shah. “So, there’s not much upside in the stock.”
The Indian government’s fuel pricing regime forces state-run producers such as ONGC to partially subsidise the sale of fuel products to consumers by state-run marketing companies.