ONGC profit halves as oil’s slump adds to subsidy payment burden2 min read . Updated: 14 Feb 2015, 06:55 PM IST
Consolidated net profit in the December quarter fell 49.9% to `3,571 crore from `7,126 crore a year ago
Mumbai: India’s biggest hydrocarbon explorer and producer—Oil and Natural Gas Corp. Ltd’s (ONGC’s) profits halved in the third quarter as a sharp fall in crude oil prices and subsidy burden dented its profits.
For the December 2014 quarter ONGC recorded a consolidated net profit of ₹ 3,571 crore, down 49.9% from ₹ 7,126 crore posted a year ago. Its consolidated revenues for the quarter came in at ₹ 18,770 crore, down 9.9% from ₹ 20,833 crore posted in the corresponding period last year.
Sales fell 9.8% to ₹ 18,710 crore, the New Delhi-based company said in a stock exchange filing on Saturday.
The company missed analysts’ estimated by a huge margin. A Bloomberg poll of 31 analysts had estimated the company’s net profit at ₹ 5,942.2 crore while a poll of 32 analysts had estimated net sales of ₹ 21,943 crore.
The lower profit and declining oil prices are raising concerns about ONGC’s ₹ 11 trillion spending plan, aimed at adding assets in India and overseas.
In the December 2014 quarter, ONGC shelled out ₹ 9,458 crore under its share of subsidy owed by the government to the oil marketing companies—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—which have to sell sensitive petroleum products such as diesel, kerosene and liquefied petroleum gas (LPG)—at regulated prices. In the corresponding period last year, ONGC had paid ₹ 13,764 crore as subsidy.
ONGC shares its subsidy by giving a discount to the oil marketing companies (OMCs) in the price of crude oil sold to them. It gave a discount of $40.43 per barrel to the in the third quarter, said a company note issue don Saturday. This was 35% less than the discount giving by ONGC in the third quarter of last fiscal.
While the company’s subsidy share came down in the last quarter as the government freed its control on the price of diesel from 18 October, the benefits from a fall in subsidy share were mostly offset due to a sharp fall in crude oil prices in the October to December period.
During the third quarter, the price of Brent crude—which is the benchmark for the quality of crude oil extracted from the North Sea—averaged $77.07 per barrel, thereby reducing ONGC’s realization on the price of crude oil to $35.57 per barrel for the quarter under review after factoring in the discount given to the OMCs.
ONGC, including its subsidiaries and joint ventures, produced 0.98% more crude oil in the quarter to 6.612 million tonnes while its gas production dropped by 4.34% to 6.012 billion cubic metres.
ONGC’s shares fell 2% to ₹ 339.55 in Mumbai trading on Friday. The stock has declined 0.5% this year, compared with a 5.8% gain in the S&P BSE Sensex.
The federal government is planning to sell a 5% stake in ONGC to raise funds to meet its budget deficit targets. The sale is scheduled for this year and the government will “consider market conditions" before it offers the shares, oil minister Dharmendra Pradhan said on 28 January. Low oil prices are a challenge for the offer, he said.
Bloomberg contributed to this story.