INDIA’s largest petroleum producer ONGC threw up disappointing figures in its September 2010 quarter results, reporting a profit growth of just 6% despite higher oil production, gas prices and higher realisations. What dragged it down was the spurt in the cost of dry wells, while the appreciation of the rupee also added to its woes.
ONGC’s subsidy burden grew 14.8% to . 3,019 crore bringing down its net realisation to $62.75 per barrel, from a gross billing of close to $79.21 per barrel. Still the net realisation was 11.2% higher y-o-y. Considering the impact of the rupee appreciation, however, the growth was reduced to just 6.8% at . 2,918 per barrel.
The company also wrote off close to . 2,441 crore of dry-well cost — 273% more than the year-ago period — which increased the depreciation burden by 87% to . 4,400 crore. While in FY10, the company had to write off a substantial amount on the failed Kerala-Konkan expedition, the current year’s losses were on ultra-deep exploration efforts in the Krishna Godavari basin. The company’s total gas production too came down 3.1% to 6.25 billion cubic meters during the quarter against the year-ago period, mainly due to reduced production from the Panna, Mukta and Tapti fields.
These negatives effectively nullified most of the positives. The company enjoyed the first full quarter of deregulated gas prices, which brought in additional revenues of around . 1,759 crore. These revenues, after adjusting for royalty, directly boosted pre-tax profits. In the meantime, output from the Rajasthan’s Barmer oil field, in which ONGC controls 30% of the equity, enabled the company report a growth of 3.3% in oil production to 6.85 million tonnes.
The quarter’s net profit was 6% higher at . 5,388.8 crore on a 20% rise in net sales at . 18,430 crore. The company also managed to improve its operating margins thanks to a reduction in other expenditure. But for dividends, other income for the quarter might have been substantially lower from the year-ago period, when the company had received interest income of . 230 crore from ONGC Videsh. This quarter, the dividend from Indian Oil, in which ONGC has an equity stake of 8.77%, rose nearly 3.5 times to . 277 crore.
The ONGC stock ended slightly up at . 1,308 before the company announced its results for the September quarter. The company is set to get nearly . 1,500 crore with the dismantling of the gas pool account, while the excessive write-offs remain a non-recurrent feature. Similarly, the government appears keen on coming up with a formula for subsidy-sharing ahead of the FPOs of Indian Oil and possibly of ONGC. The scrip’s p/e at 17.6 appears to discount much of these factors that can boost its profits in the near term.
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