New Delhi: Indian state-run explorer Oil & Natural Gas Corp reported a 24.5% fall in first-quarter net profit, lagging estimates, as a rise in crude oil prices meant it had to make higher subsidy payouts.
ONGC, which is looking to buy BP’s assets in Vietnam, posted April-June net profit of Rs36.61 billion ($785.6 million), down from Rs48.48 billion a year earlier.
A Reuters poll had forecast net profit of Rs42.6 billion.
ONGC is required to partially subsidise the sale of fuel to state-run retailers, who sell fuel at state set, below-market prices, which affects its profit.
The government recently deregulated gasoline prices and has said it would free diesel prices as well, but clarity on the subsidy-sharing mechanism for other fuels is yet to emerge.
“Though the government has talked a lot about freeing prices, the mechanism by which the subsidy will be calculated has not emerged,” Sonam Udasi, head of research at IDBI Capital, said.
“Also, if oil prices go up again, then government intervention will start again,” he said.
India has asked state-run upstream firms to pay a subsidy of Rs66.91 billion to retailers to compensate them for selling fuel at cheaper rates in the June quarter, an executive at Oil India said last week.
ONGC’s subsidy share in the June quarter stood at about Rs55.16 billion. In contrast, the company gave a discount of just Rs4.29 billion on crude sales to state-run refiners in the prior-year quarter.
Eyeing BP’s Vietnam assets
The company expects a hike in gas prices to add Rs15-16 billion ($322-$343 million) to revenue a quarter, chairman R.S. Sharma said on Thursday.
ONGC shares fell 1.1% to Rs1,242.50 ahead of the results, while the broader Mumbai market gained 0.2%.
ONGC and state-backed Petrovietnam are expected to submit a joint formal offer within weeks to buy BP’s stake in the Nam Con Son gas project, India’s oil secretary, S. Sundareshan, said on Tuesday.
On Thursday, ONGC’s Sharma said the company has started talks with Petrovietnam to buy BP’s Vietnam assets.
ONGC is well positioned to buy the embattled UK firm’s 35% stake, worth $966 million by one estimate, in the offshore Vietnamese gas field in which it already owns 45%. Vietnam insists BP give priority to its partners in the project.
A deal would be a welcome change for India, which has been playing the underdog to China in the hunt for natural resources as the two Asian countries seek energy security to feed fast economic growth.
India’s Reliance Industries and Essar Group are talking to BP about buying its African retail assets that could be worth as much as $500 million, sources have told Reuters.
Reliance, India’s biggest listed company, increased its quarterly profit by almost a third on higher gas production, and is expanding overseas into shale gas.