Extraordinary gains keep petroleum sector afloat

THE petroleum sector came out with mixed results for the quarter ended December 2007. Dismal performance at the operating level during the quarter was boosted by extraordinary items — the prominent one being Rs 4,733-crore profit reported by Reliance Industries (RIL), contributed by stake sale in Reliance Petroleum (RPL).
A set of nine companies operating in petroleum exploration and production, refining and marketing witnessed a 16.3% growth in aggregate net sales. Operating profit growth was restricted to 3.1% due to under-recoveries from sale of fuels by marketing companies. Net profit rose by 48.2% on account of higher extraordinary income. If one were to exclude this item, the real growth in PAT would have been just 7.7%.
Integrated marketing players continued to suffer from under-recoveries as domestic fuel prices did not rise in line with the increase in international prices of crude oil and petroleum products during the quarter.
These companies — Indian Oil, HPCL and BPCL —could not derive any benefit from higher gross refining margins, higher help from the government and higher discounts from upstream oil companies. BPCL’s net profit fell by 4% while HPCL reported a net loss. The industry leader Indian Oil registered a 16.7% improvement in bottomline at Rs 2,091 crore.
In the private sector, RIL enjoyed an excellent quarter, posting refining margins of $15.4 per barrel. Sub-optimal performance of its other business segments resulted in operating margin falling below the year-ago level. The other private sector refiner Essar Oil continued to lose money in the same period.
Standalone public sector refiners reported multifold rise in profit due to strong refining margins. Being comparatively smaller in size, their performance did not have any material impact on aggregate results. T
he three standalone refiners — Mangalore Refinery (MRPL), Chennai Petroleum (CPCL) and Bongaigaon Refinery (BRPL) — together represented around 9% of the aggregate December 2007 sales of the industry and around 6% of PAT.
The rising crude oil prices, as high as $100 per barrel in the global markets, could not improve the performance of the country’s largest petroleum exploration and production firm ONGC.
Under the government directive, the company had to extend record-high discounts, exceeding $30 per barrel to marketing companies.
ONGC’s sales dipped 2.9% during the quarter and operating margins weakened. However, higher other income and fall in depreciation helped the company curtail the fall in net profit to 6.5%. The strong performance by refining companies and private players may continue depending on the gross refining margins. However, the rate of growth is likely to remain tapered.