New Delhi: State-owned explorer Oil and Natural Gas Corp. Ltd (ONGC) said net profit rose 60% in the quarter ended September due to high crude oil prices combined with a lower subsidy sharing burden on the sale of fuel by state-owned oil marketing companies (OMCs).

Lesser burden: ONGC chairman and managing director Sudhir Vasudeva. By Andrew Caballero-Reynolds/Bloomberg

“The main reason behind the increase in net profit was a lower subsidy burden in the last quarter and high crude oil prices," Sudhir Vasudeva said on Friday in his first earnings briefing since taking over as chairman and managing director on 3 October.

According to the petroleum ministry, the total under-recoveries—the difference between market price and fuel retail rates—to be borne by OMCs this fiscal are expected to be around 1.32 trillion, compared with 78,190 crore last year. The total under-recovery of Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) in the first half of 2011-12 was 64,900 crore. ONGC’s gross and net realization per barrel of crude increased 47.6% and 33.4% to $116.94 and $83.70 per barrel, respectively.

“Hopefully, oil will remain between $90-100 per barrel," Vasudeva said.

The results were announced after market hours.

ONGC has cash reserves of 20,000 crore, of which 6,000 crore has been kept aside in a site restoration fund that can’t be accessed.

In another development, Vasudeva said the company expects to get around 2,500 crore on account of royalty recovery from Cairn India Ltd’s main oil asset, block RJ-ON-90/1, in Rajasthan. After tax payment, the amount is expected to be around 1,900 crore, which will be accounted for in the next quarter.

A tripartite agreement is to be signed by ONGC, Cairn Energy Plc. and Vedanta Resources Plc. This follows the issue of a no-objection certificate by ONGC for Vedanta’s proposed acquisition of a majority stake in Cairn India.

“Everything has been sorted out, nothing is pending. The agreement will be signed shortly," Vasudeva said.

ONGC is Cairn India’s partner in a joint venture that runs the block. ONGC wanted to be compensated for royalty payments it has been making on the oil produced at this field.

Cairn had declined to make these payments. The closure of one of the largest domestic acquisitions in India had been hanging fire with the state-owned firm making the resolution of the royalty dispute a pre condition for approval.

The cabinet committee on economic affairs in July approved the acquisition with riders to protect ONGC’s interest. The committee suggested that royalty on the Cairn-ONGC oil fields in Rajasthan be treated as cost-recoverable and the ongoing arbitration case on cess be withdrawn.

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