Cairn India Ltd is likely to report good earnings for the quarter ended June (Q1), thanks to higher crude oil prices. The company is the only pure crude oil play in the country at present. Production from Cairn India’s Mangala gas fields is expected at 125 kilo barrels per day.
On the other hand, oil marketing companies (OMCs)—Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd—are likely to suffer heavily from selling fuel below cost.
True, the government increased prices of diesel, kerosene and LPG (liquefied petroleum gas), and brought into effect some duty cuts during the quarter. But that had happened towards the end of the quarter and its full impact would reflect in the September quarter financial results.
For the June quarter, analysts are expecting gross under-recoveries to be around Rs 43,000 crore. So, investors can expect a weak June quarter for OMCs.
But state-run upstream oil companies—Oil and Natural Gas Corp. Ltd and Oil India Ltd—may report good numbers, as gross realizations should improve due to higher average oil prices.
Meanwhile, analysts do not anticipate Reliance Industries Ltd’s premium to the Singapore gross refining margins (GRMs) to be high. Refining margin is the difference between the value of petroleum products produced by a refinery and the price of crude oil.
“We expect GRMs of $10.4 (Rs 464 today) per barrel (up 42% year-on-year and 13% sequentially), driven by middle distillates. However, reported premium to Singapore complex is likely to remain low at about $1.8 per barrel due to higher Brent-linked crude costs and increased gas costs (supply cut of KG D6 gas and higher LNG prices),” point out analysts from Nomura Equity Research in their June quarter earnings preview. Needless to say, investors are likely to keep a close tab on the output of the KG D6 gas block.
The strong operating environment for refining companies should help refiners such as Chennai Petroleum Corp. Ltd and Mangalore Refinery and Petrochemicals Ltd as well.
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