THE performance of India’s petroleum industry in the December 2008 quarter was a mixed bag, with some pleasant surprises and some disappointments. With the petroleum prices crashing and economic slowdown pushing demand lower, the industry ended putting up a grossly poor show. Most of the players reported historically high losses, while Reliance Industries (RIL) posted a fall in both sales and profits for the first time in six years.
The fall in crude oil impacted the prices of finished products and at the same time, forced companies to value their inventories significantly lower.
The main positive during the quarter was the hefty profits posted by Bharat Petroleum. The partial shutdown of the Kochi refinery reduced the company’s crude oil import requirements, thereby immunizing it from inventory losses. IndianOil also reported healthy profits at Rs 2,959 crore.
RIL surpassed market expectations by registering profits of Rs 3,500 crore in the December 2008 quarter against the majority estimates of Rs 2,300 crore-Rs 3,300 crore. The company not only reported gross refining margins of $10 a barrel — better-than-street expectations — but also improved the operating margins of its petrochemicals business over the first half of the year. Cairn India, which is planning to operationalise its Rajasthan fields by September, reported a substantially higher net profit of Rs 236 crore due to a jump in other income and write-back of previous tax provisions.
However, oil producer ONGC and gas transporter Gail disappointed the most during the December quarter. The subsidy burden borne by these navratna companies did not lighten in proportion to the fall in global crude prices. ONGC reported a net profit of Rs 2,475 crore, its lowest in at least 18 quarters, and GAIL’s net profit of Rs 253 crore was the lowest in almost 15 quarters.
Standalone refiners such as Mangalore Refinery (MRPL), Chennai Petroleum (CPCL) and Bongaigaon Refinery (BRPL) saw losses not seen in at least five years. Essar Oil, which commissioned commercial operations at its Vadinar refinery in May 2008, also reported hefty losses of Rs 1230 crore.
Besides the adverse global petroleum scenario, the steep depreciation in the rupee also hurt. IndianOil lost Rs 694 crore due to the weak rupee. Essar Oil wrote off Rs 679 crore as foreign exchange losses, MRPL took a Rs 79-crore hit, BPCL lost Rs 147 crore and CPCL, Rs 96 crore.
However, RIL continued to adjust the foreign currency exchange differences on the money borrowed for acquisition of fixed assets to carrying costs, in compliance with Schedule VI of the Companies Act.
The smaller natural gas transporters didn’t have anything to cheer about either. Indraprastha Gas wrote off Rs 17.5 crore towards over-withdrawal of natural gas and saw a 15% drop in profit at Rs 38 crore. Gujarat State Petronet’s volumes dropped as its customers switched to naphtha, which became cheaper during the quarter. The company posted 10% jump in net profit at Rs 28 crore. Gujarat Gas is yet to publish its results for the December 2008 quarter.
Crude oil prices have stabilised and refining margins have improved globally since January, making the operations of domestic oil marketing companies profitable. RIL’s KG basin gas fields are expected to start production from mid-February and this will gradually improve the volumes for domestic natural gas carriers. The scenario appears favourable for the petroleum industry, going forward.
The fall in crude oil impacted the prices of finished products and at the same time, forced companies to value their inventories significantly lower.
The main positive during the quarter was the hefty profits posted by Bharat Petroleum. The partial shutdown of the Kochi refinery reduced the company’s crude oil import requirements, thereby immunizing it from inventory losses. IndianOil also reported healthy profits at Rs 2,959 crore.
RIL surpassed market expectations by registering profits of Rs 3,500 crore in the December 2008 quarter against the majority estimates of Rs 2,300 crore-Rs 3,300 crore. The company not only reported gross refining margins of $10 a barrel — better-than-street expectations — but also improved the operating margins of its petrochemicals business over the first half of the year. Cairn India, which is planning to operationalise its Rajasthan fields by September, reported a substantially higher net profit of Rs 236 crore due to a jump in other income and write-back of previous tax provisions.
However, oil producer ONGC and gas transporter Gail disappointed the most during the December quarter. The subsidy burden borne by these navratna companies did not lighten in proportion to the fall in global crude prices. ONGC reported a net profit of Rs 2,475 crore, its lowest in at least 18 quarters, and GAIL’s net profit of Rs 253 crore was the lowest in almost 15 quarters.
Standalone refiners such as Mangalore Refinery (MRPL), Chennai Petroleum (CPCL) and Bongaigaon Refinery (BRPL) saw losses not seen in at least five years. Essar Oil, which commissioned commercial operations at its Vadinar refinery in May 2008, also reported hefty losses of Rs 1230 crore.
Besides the adverse global petroleum scenario, the steep depreciation in the rupee also hurt. IndianOil lost Rs 694 crore due to the weak rupee. Essar Oil wrote off Rs 679 crore as foreign exchange losses, MRPL took a Rs 79-crore hit, BPCL lost Rs 147 crore and CPCL, Rs 96 crore.
However, RIL continued to adjust the foreign currency exchange differences on the money borrowed for acquisition of fixed assets to carrying costs, in compliance with Schedule VI of the Companies Act.
The smaller natural gas transporters didn’t have anything to cheer about either. Indraprastha Gas wrote off Rs 17.5 crore towards over-withdrawal of natural gas and saw a 15% drop in profit at Rs 38 crore. Gujarat State Petronet’s volumes dropped as its customers switched to naphtha, which became cheaper during the quarter. The company posted 10% jump in net profit at Rs 28 crore. Gujarat Gas is yet to publish its results for the December 2008 quarter.
Crude oil prices have stabilised and refining margins have improved globally since January, making the operations of domestic oil marketing companies profitable. RIL’s KG basin gas fields are expected to start production from mid-February and this will gradually improve the volumes for domestic natural gas carriers. The scenario appears favourable for the petroleum industry, going forward.
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