But It Will Be A Tough Ride Ahead As Concerns Over Global Recovery Remain
SEVERAL Indian petroleum companies are expected to post healthy growth numbers when they publish their December 2009 quarter results in the next couple of weeks. On the face of it, the growth numbers for the December 2009 quarter may appear encouraging for investors, however, they must bear in mind that this growth is posted on a low base. Most companies had suffered heavily in the December 2008 quarter due to a crash in oil prices.
UPSTREAM
The profitability of ONGC will jump markedly in December 2009 quarter mainly as its subsidy burden declines. ONGC contributed Rs 4,899 crore as subsidy in December 2008 quarter and reported net realisations were just $25 per barrel of oil sold to oil marketing companies. In the current quarter, its subsidy burden is expected to decline to Rs 3,600 crore, which will improve its realisation above $55 per barrel. Brokerage estimates peg ONGC’s profit jump between 75% and 105% against the year ago period. Cairn will report its first production numbers from Rajasthan field during the third quarter. Cairn sold its first cargo of crude oil from Rajasthan fields in the first week of October 2009 and is estimated to have sold a total 1.25 million barrels of oil during the December 2009 quarter. However, with the start of commercial operations, interest and depreciation costs will dent its profitability. Brokerage estimates vary widely for the company, estimating a profit fall between 3% and 75% against the corresponding quarter last year.
MID-STREAM
The standalone refiners such as Mangalore Refinery and Chennai Petroleum will post modest profits in the December 2009 quarter compared to the net losses in the year ago period. However, the weaker industry outlook means their profits will be lower on a sequential basis compared to the September 2009 quarter. Private sector refiners RIL and Essar Oil too will face the pressure on their gross refining margins. However, RIL will post some profit growth, thanks to doubled volumes from additional refinery and increasing gas volumes from KG basin. According to various brokerages, RIL will post GRMs between $5 and $5.6 per barrel and profit for December quarter will be higher by 13-19% on a y-o-y basis.
DOWNSTREAM
The fate of public sector oil marketing companies (OMCs) — Indian Oil, BPCL and HPCL — will clearly depend on whether the government compensates them fully for their under-recoveries. These companies have not received any government support for the first half of FY10. Latest media reports suggest that the finance ministry is willing to make good only one-third of the estimated under-recoveries of these three oil majors for FY10 so far. This will leave the oil companies to absorb a large chunk of losses for the whole year.
The global business outlook for the petroleum industry is expected to remain subdued for the months to come. While the refining players will face margin pressure, the crude oil prices too run a downside risk if the built-in growth expectations don’t fructify.
For Indian players, the long overdue recommendations by the KG Parikh Committee remain the foremost positive factor. Any liberalisation in the industry could bring down the under-recovery problem for the PSU players, while the private players could find themselves on a level playing field in the retail business. Besides, the proposed gas price hike will bid well for ONGC while the success of LyondellBasell deal could bring in more positives for RIL.
SEVERAL Indian petroleum companies are expected to post healthy growth numbers when they publish their December 2009 quarter results in the next couple of weeks. On the face of it, the growth numbers for the December 2009 quarter may appear encouraging for investors, however, they must bear in mind that this growth is posted on a low base. Most companies had suffered heavily in the December 2008 quarter due to a crash in oil prices.
UPSTREAM
The profitability of ONGC will jump markedly in December 2009 quarter mainly as its subsidy burden declines. ONGC contributed Rs 4,899 crore as subsidy in December 2008 quarter and reported net realisations were just $25 per barrel of oil sold to oil marketing companies. In the current quarter, its subsidy burden is expected to decline to Rs 3,600 crore, which will improve its realisation above $55 per barrel. Brokerage estimates peg ONGC’s profit jump between 75% and 105% against the year ago period. Cairn will report its first production numbers from Rajasthan field during the third quarter. Cairn sold its first cargo of crude oil from Rajasthan fields in the first week of October 2009 and is estimated to have sold a total 1.25 million barrels of oil during the December 2009 quarter. However, with the start of commercial operations, interest and depreciation costs will dent its profitability. Brokerage estimates vary widely for the company, estimating a profit fall between 3% and 75% against the corresponding quarter last year.
MID-STREAM
The standalone refiners such as Mangalore Refinery and Chennai Petroleum will post modest profits in the December 2009 quarter compared to the net losses in the year ago period. However, the weaker industry outlook means their profits will be lower on a sequential basis compared to the September 2009 quarter. Private sector refiners RIL and Essar Oil too will face the pressure on their gross refining margins. However, RIL will post some profit growth, thanks to doubled volumes from additional refinery and increasing gas volumes from KG basin. According to various brokerages, RIL will post GRMs between $5 and $5.6 per barrel and profit for December quarter will be higher by 13-19% on a y-o-y basis.
DOWNSTREAM
The fate of public sector oil marketing companies (OMCs) — Indian Oil, BPCL and HPCL — will clearly depend on whether the government compensates them fully for their under-recoveries. These companies have not received any government support for the first half of FY10. Latest media reports suggest that the finance ministry is willing to make good only one-third of the estimated under-recoveries of these three oil majors for FY10 so far. This will leave the oil companies to absorb a large chunk of losses for the whole year.
The global business outlook for the petroleum industry is expected to remain subdued for the months to come. While the refining players will face margin pressure, the crude oil prices too run a downside risk if the built-in growth expectations don’t fructify.
For Indian players, the long overdue recommendations by the KG Parikh Committee remain the foremost positive factor. Any liberalisation in the industry could bring down the under-recovery problem for the PSU players, while the private players could find themselves on a level playing field in the retail business. Besides, the proposed gas price hike will bid well for ONGC while the success of LyondellBasell deal could bring in more positives for RIL.
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