New Delhi: India’s largest oil producer, Oil and Natural Gas Corp. Ltd, or ONGC, reported a 43% decline in third quarter net profit on Wednesday after oil prices dropped from a record and the company paid subsidies to state-run refiners.
Net income slumped to Rs2,475 crore, or Rs11.57 a share, in the three months to December, from Rs4,370 crore, or Rs20.42, a year earlier, the New Delhi-based company said in a statement to the Bombay Stock Exchange (BSE). The median estimate of 10 analysts surveyed by Bloomberg was a profit of Rs3,718 crore.
Crude futures have lost more than $100 a barrel since reaching a record in July, hurting earnings for producers as the global recession erodes demand for energy. The explorer, which bought the UK’s Imperial Energy Plc. for £1.4 billion (about Rs9,760 crore), may postpone or cancel project investments.
Net dips: An ONGC oil drilling platform at Bombay High. The explorer paid subsidies of Rs4,900 crore, or $25 a barrel, during the quarter. Bloomberg
“These aren’t good times for ONGC,” Vinay Nair, an analyst at Mumbai-based Khandwala Securities Ltd, said before the earnings announcement. “Oil prices are likely to remain at these levels for some more time.”
ONGC, which contributes 70% of India’s domestic oil production, has been seeking stakes in fields overseas as domestic production dwindles. A joint venture between the producer and billionaire Lakshmi Mittal’s Mittal Investments Sarl signed a preliminary agreement last week to explore for oil and gas in the Satpayev area in the Caspian Sea in Kazakhstan.
The Kazakhstan agreement is the first after ONGC agreed to buy Imperial Energy in August. The acquisition, ONGC’s biggest, went ahead after crude dropped 62% since the company made its offer to buy Imperial Energy.
Oil has declined from a record $147.27 a barrel in July as the global recession curbed industry spending and reduced energy demand.
“When oil prices are down, investments should be affected,” said Niraj Mansingka, an analyst at Mumbai-based Edelweiss Capital Ltd.
Subsidies paid to state refiners during the quarter also hurt ONGC’s earnings. The explorer paid subsidies of Rs4,900 crore, or $25 a barrel, and sold oil at $33.99 a barrel, the company said.
India asks state refiners to sell petrol and diesel below cost in a bid to curb inflation. The government compensates them by paying bonds and asking other state-owned firms to bear part of the cost. Subsidy payouts in the third quarter was Rs12,660 crore, or $72.70 a barrel. The subsidy payment in the third quarter a year earlier almost tripled to Rs6,080 crore after oil prices climbed.
India may consider cutting fuel subsidies borne by ONGC and monopoly gas supplier GAIL India Ltd to help boost their earnings after global crude oil prices slumped, oil secretary R.S. Pandey said on 22 December.
The fall in oil prices was partially offset by currency exchange rates. The average trading price of the rupee against the dollar declined 24% in the quarter from a year earlier. Refiners pay for the crude oil they buy in dollars and a weaker rupee increases ONGC’s revenue when converted into the local currency.
ONGC shares gained 3.2% to Rs641.25 each in Mumbai trading. The shares have fallen 36% in the past year, less than the 49% decline in the BSE’s benchmark Sensex. The earnings were announced after the markets closed.
Crude oil for March delivery rose by 87 cents, or 2.1%, to $42.45 a barrel on the New York Mercantile Exchange.
Global oil demand will shrink 0.6% to 85.3 million barrels a day this year, the first two-year decline since 1983, the International Energy Agency said on 16 January.