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Rising crude prices remained supportive benefiting ONGC’s performance during the quarter ended March 2021. The company saw a sharp jump in net realizations, which for the standalone entity at $58.10 a barrel, were at a five-quarter high. Crude oil sales however saw an impact from covid-19.

Net crude oil sales at 5.2 million tonnes (mt) was down 4% year-on-year, and was in line with analysts’ estimates.

The benefits of higher crude realizations were partially mitigated by low gas prices., which at $1.79 per million metric British thermal units (mmBtu) were significantly lower than $3.23 per mmBtu during Q4FY20. Gas sales suffered due to the covid impact (down 8.1% year-on-year). The company said the shortfall in natural gas production is primarily due to less offtake by customers due to the covid-19 pandemic. This has resulted in a production shortfall of condensate and value-added products (VAP) as well.

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Turnaround awaited

Its standalone revenues were down 1.2% year-on-year. Lower operating costs however lifted operating performance. At 10,120 crore, Ebitda (earnings before interest, tax, amortization and depreciation) jumped 18% year-on-year and margins at 47.8% were significantly higher than the 40% in the year-ago quarter and 42.7% in the previous quarter. The same also lifted net profits that at 6,733 crore grew fivefold from the previous quarter. It had made losses during the year-ago quarter. This included benefits from extraordinary gains. Adjusted for the same, though, profits were still up fivefold over a year ago, as per analysts at Motilal Oswal Financial Services Ltd.

Moving forward with crude prices at multi-year highs in the current quarter, the firm may see further improvement in crude price realizations. The firm does not expect any subsidy burden despite rising crude prices, which is a key positive. On the positive side, the company said it has almost reached last year’s production levels in case of crude oil from its operated blocks despite a countrywide lockdown due to covid. This may boost crude oil contributions further.

Domestic gas prices nevertheless will be reviewed from the second half. Gas demand may remain strong as covid-led disruption normalizes. However, all eyes will be on an uptick in gas production. The company intended to raise gas production in FY21, but it got delayed due to covid-related disruption. The pickup in gas production during FY22 and FY23 will be watched for and is important to drive gas segment performance at a time when gas prices are at historical lows. Analysts were cautious on production uptick, and said that in the near term, high crude prices would support earnings.

Yogesh Patil, research analyst at Reliance Securities, said ONGC remains a pure play on crude prices. Though oil and gas production is normalizing, analysts are awaiting triggers on oil and gas production growth to drive earnings.

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