THE country’s largest oil explorer ONGC has disappointed investors by reporting a 43% year-on-year drop in third-quarter net profit to Rs 2,475 crore — its lowest profit figure in the last 18 quarters.
While a global crash in crude oil prices and a fall in onshore oil production has dragged profits lower, ONGC’s large subsidy burden has also taken the market by surprise.
At Rs 4,899 crore, the subsidy burden substantially overshot expectations of about Rs 3,770 crore. The company’s total income declined by 18% to Rs 12,521 crore compared with Rs 15,218 crore in the corresponding quarter in the previous year. ONGC reported a 1.1% dip in its net profit at Rs 13,920 crore compared with Rs 14,075 crore in the same period previous year.
The ever-mounting subsidy burden has been a constant cause of pain for the company as it has risen at a pace faster than ONGC’s sales or profits over the last few quarters. The subsidy burden now occupies a significantly larger proportion in its financial numbers. As percentage of sales, the subsidy burden has shot up to nearly 55% in the nine months ended December 31, 2008 from just over 25% in FY 2006.
This resulted in net realisation — the difference between the average price per barrel of crude during the quarter and the discount given to state oil marketing companies — falling to levels not seen in at least the last three years. ONGC’s net realisation fell to $34 per barrel from $54 per barrel a year ago.
Operating margin during the quarter crashed by 1,270 basis points to 40.7% as operating costs rose. A strong 47% jump in its other income to Rs 1,119 crore could do little to support the profit figures due to higher depreciation.
Going forward, falling production at ONGC’s onshore oil wells and offshore gas producing centres will remain a major concern. During the third quarter, onshore oil production fell by 6% year-on-year, while offshore gas output dropped by 1.4%.
On the positive side, the subsidy burden on the company is likely to lighten considerably as downstream oil marketing companies turn profitable thanks to low crude oil prices. Similarly, the rising proportion of output from ONGC Videsh and new exploration blocks in its production portfolio will reduce uncertainties related to the subsidy burden.
While a global crash in crude oil prices and a fall in onshore oil production has dragged profits lower, ONGC’s large subsidy burden has also taken the market by surprise.
At Rs 4,899 crore, the subsidy burden substantially overshot expectations of about Rs 3,770 crore. The company’s total income declined by 18% to Rs 12,521 crore compared with Rs 15,218 crore in the corresponding quarter in the previous year. ONGC reported a 1.1% dip in its net profit at Rs 13,920 crore compared with Rs 14,075 crore in the same period previous year.
The ever-mounting subsidy burden has been a constant cause of pain for the company as it has risen at a pace faster than ONGC’s sales or profits over the last few quarters. The subsidy burden now occupies a significantly larger proportion in its financial numbers. As percentage of sales, the subsidy burden has shot up to nearly 55% in the nine months ended December 31, 2008 from just over 25% in FY 2006.
This resulted in net realisation — the difference between the average price per barrel of crude during the quarter and the discount given to state oil marketing companies — falling to levels not seen in at least the last three years. ONGC’s net realisation fell to $34 per barrel from $54 per barrel a year ago.
Operating margin during the quarter crashed by 1,270 basis points to 40.7% as operating costs rose. A strong 47% jump in its other income to Rs 1,119 crore could do little to support the profit figures due to higher depreciation.
Going forward, falling production at ONGC’s onshore oil wells and offshore gas producing centres will remain a major concern. During the third quarter, onshore oil production fell by 6% year-on-year, while offshore gas output dropped by 1.4%.
On the positive side, the subsidy burden on the company is likely to lighten considerably as downstream oil marketing companies turn profitable thanks to low crude oil prices. Similarly, the rising proportion of output from ONGC Videsh and new exploration blocks in its production portfolio will reduce uncertainties related to the subsidy burden.
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