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OIL looks well placed at present

OIL looks well placed at present
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First Published: Tue, Aug 30 2011. 10 06 PM IST
Updated: Tue, Aug 30 2011. 10 06 PM IST
In a presentation to investors on 25 August, Oil India Ltd (OIL) said that it has lined up investments to the tune of Rs 3,200 crore for the current fiscal year. Of this, 52% is for exploration initiatives and 27% for the development of existing acreage potential.
According to recent news reports, the state-owned upstream company is also looking at diversification through areas such as city gas distribution. While it’s too early to talk about it, analysts maintain that it would be a positive move for the company.
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OIL has given a forecast of 3.76 million tonnes for its crude oil production for this fiscal. For the June quarter, crude oil production stood at 965,000 tonnes. At that run rate, the company could surpass its forecast. According to a note from IDFC Securities Ltd, “OIL has done a very good job of maintaining and expanding production from what is essentially an ageing portfolio of assets (some of them more than 25 years old) and continues to be positive about sustaining growth in the medium term.”
The company delivered a strong performance in the June quarter, with operating profit increasing by as much as 80% from a year ago to Rs 1,240 crore and net profit, too, increasing sharply by 70% to Rs 850 crore.
Like Oil and Natural Gas Corp. Ltd (ONGC), OIL also shares the under-recoveries (losses on selling fuel below the market price) of Indian oil marketing companies. That’s one of the overhangs for both stocks, given the ad hoc nature of subsidy-sharing.
Though, in absolute terms, OIL’s subsidy burden is far less than ONGC. This is one of the reasons for OIL’s comparatively better net realizations. Take last fiscal year for instance; OIL’s net realization stood at $58.5 (Rs 2,690 today) per barrel against ONGC’s $53.7. In the June quarter, OIL’s net realization stood at $59.5 per barrel against $48.8 for ONGC.
Total under-recoveries for the sector in the June quarter were a huge Rs 43,500 crore and the share of the upstream companies stood at one-third of that. In the June quarter, ONGC shared a massive 83% of the total upstream subsidy burden, OIL shared 12% and GAIL (India) Ltd shared 5%. In the September quarter, net realizations of both the companies are expected to improve, as overall under-recoveries are expected to come down substantially. That’s because the full impact of duty cuts and increase in prices of petroleum products announced at June-end will reflect in the current quarter.
Moreover, the crude prices outlook, too, is subdued in the near term. While the ONGC stock is under pressure because of its follow-on public offer, OIL has no such issues. But the utilization of cash in OIL’s case is something investors would keep a close tab on.
Graphic by Yogesh Kumar/Mint
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First Published: Tue, Aug 30 2011. 10 06 PM IST
More Topics: Mark to Market | Pallavi Pengonda | OIL | ONGC | GAIL |