Thursday, August 6, 2009

Oil & gas cos hit by lower prices, refining margins

NDIA’S oil & gas sector turned out dismal performance for the quarter ended June 2009 due to lower petroleum prices and pressure on refining margins, limiting the gains of the ET Oil & Gas index in the last one month to 6.7% against a 13.1% gain in the broader ET-100 benchmark.
Reliance Industries (RIL) reported a gross refining margin (GRM) of just $7.5 per barrel for the June 2009 quarter, less than half of $15.7 a year ago. Its refining business, which earlier used to contribute over half the profits, accounted to a little over a quarter of RIL’s profits for the June quarter. An increase in tax rates under minimum alternate tax (MAT) further impacted its bottomline, which fell 12% to Rs 3,636 crore. Essar Oil, however, turned out substantially better results, thanks to a sales tax deferral of Rs 210 crore and Rs 30 crore gain in inventory valuation. Its GRM was at $6.74 per barrel, while the company’s net profits for the quarter jumped fivefold to Rs 169 crore. State-owned refiners Mangalore Refinery (MRPL) and Chennai Petroleum (CPCL), both witnessed over 50% reduction in their profits for the quarter as GRMs crashed.
Three public sector oil marketing companies — Indian Oil, BPCL and HPCL — emerged clear gainers of low petroleum prices. They incurred negligible underrecoveries and posted substantially superior performances despite lack of any oil bonds. Further, the gains on rupee strengthening and a marked reduction in interest costs added lustre to their performance. Considering the revision in auto fuels in early July, these companies are expected to report healthy profits for the September 2009 quarter as well compared with the losses in the same quarter last year.
India’s largest oil producer ONGC reported a 27% fall in its profits to Rs 4,848 crore for the quarter due to lower crude oil prices. However, reduction in its subsidy burden meant that the performance was better than expected. The company has made several discoveries over past few years and added to its reserve base. Also, it is likely to obtain a better price for the natural gas it produces and sells below cost.
Cairn India witnessed its profits fall by two-third to Rs 45.4 crore despite a jump in other income, on the back of the lower crude oil prices. The company is expected to commission production from its Rajasthan fields sometime soon. The crude oil being waxy in nature will be sold at a discount of $6.5-$10 per barrel to the benchmark Brent prices. At the same time, the company will have to incur an additional cost of $7-10 per barrel on trucking it to the Gujarat coast, till its 600-km pipeline becomes functional by end-2009.
GAILIndia had a tough quarter, which witnessed substantial erosion of its profitability in petrochemicals and liquid hydrocarbons businesses. Despite gains in its natural gas businesses, the company posted a 27% fall in profit to Rs 655.8 crore. Two city gas distribution companies — Indraprastha Gas and Gujarat Gas — reported steady growth in gas volumes and profits during the quarter. The additional natural gas from India’s eastern coast benefited Gujarat State Petronet the most, which more than doubled its net profit during the quarter with a 40% jump in transported volumes.
Further ahead, the legal battle over KG basin gas with Reliance Natural Resources, and a depressed business outlook for its main refining business continues to cast doubts over the future profitability of RIL. Most of the other companies, including ONGC, Essar Oil, Cairn and GAIL, appear richly priced leaving little scope of growth for retail investors.

No comments:

Post a Comment