Crude crash lifts oil marketing cos’ bottomlines

INDIA’S three public sector Fortune 500 oil marketing companies, Indian Oil, Bharat Petroleum and Hindustan Petroleum, made remarkable turnaround in the fourth quarter on the back of a crash in crude prices to end FY09 in the black, after wiping out combined accumulated losses of more than Rs 11,000 crore made in the first nine months.
The last quarter’s performance — coming despite a sharp reduction in the assistance from government and upstream oil companies — helped these companies end the year with a cumulative profit of Rs 4,260 crore.
The upstream discounts in the quarter fell over 90% year-on-year to Rs 948 crore and the special oil bonds by the government dipped by 31% to Rs 10,325 crore. After the fall in crude oil prices, however, these firms were selling fuels at prices higher than the cost for the better part of the quarter. Although the companies are celebrating with higher dividend payouts, they are unlikely to repeat this feat in the coming quarters in view of the rising crude oil prices.
While the marketing operations turned profit making, the refining operations of these oil companies slipped. Indian Oil’s gross refining margin in the March quarter was nearly half of that a year before, while BPCL’s GRM was 27% lower. HPCL could improve its GRMs for the quarter. However, all the three companies recorded lower profits for the whole year. Yet, they have substantially raised their annual dividends. Indian Oil’s dividend for FY09 at Rs 7.5 per share will be 36% higher than last year, while both BPCL and HPCL have raised their dividends by 75% from FY08.
The higher dividends will put further strain on the cashflows of these oil majors, which have still not received almost Rs 10,000 crore of oil bonds from the government. Also, the year saw the total interest burden of the companies swell 164% to over Rs 8,700 crore. On the bourses, the companies have done well over the last one month on the buzz of sectoral reforms and speculation on deregulation in petroleum retailing. However, with crude oil prices continuing to rise, the marketing operations of these companies will go back to losses without such comprehensive reforms.