June 25 (Bloomberg) -- Oil & Natural Gas Corp., India's biggest explorer, said fiscal fourth-quarter profit fell 13 percent after increasing payments to state-run refiners to share the cost of subsidizing fuel prices.

Net income fell to 26.82 billion rupees ($656 million) in the quarter ended March 31, from 30.86 billion rupees a year ago, the company said in a statement to the Bombay Stock Exchange today. Fourth-quarter revenue rose to 145.76 billion rupees from 125.28 billion rupees.

Changes to accounting rules forced Oil & Natural Gas to pay 11 billion rupees for retirement, medical and wage benefits during the quarter. On top of that, the government-run company had to sell crude oil to state refiners at below-market prices to contribute 46.7 billion rupees as fuel subsidy.

``The market had not expected the company to pay this much to other oil companies,'' said Ballabh Modani, an analyst with Batlivala & Karani Securities Pvt., who rates the stock a `buy'.

The company earned $35.59, which excluded a discount of $24.84, for each barrel of oil produced in the three-month period, compared with $44.74, excluding a discount of $19.45, in the year earlier period, Sharma said.

Oil & Natural Gas isn't allowed to charge market rates for oil because the government caps prices for local refiners to cut their losses from selling fuels below cost to control inflation and limit the effect on consumers.

Subsidy Payments

Subsidy payments to refiners rose to 46.7 billion rupees in the fiscal fourth-quarter from 34.07 billion rupees a year earlier, the company said.

The state-run oil producer expects subsidy payments will be lowered in the year ending March as a stronger rupee helps refiners in cutting the cost of purchasing crude oil from the overseas markets, Sharma said.

``Rupee appreciation should be factored in while calculating subsidies and this has already been discussed with the government,'' he said.

Kotak Securities Ltd. analysts Sanjeev Prasad and Gundeep Singh on May 10 forecast fourth-quarter net income of about 30 billion rupees, paring an earlier estimate of 47.7 billion on the expectation subsidy payments would increase.

Macquarie Securities Ltd. analysts Jal Irani and Amit Mishra June 22 forecast fourth-quarter net income of 31.56 billion rupees. Profit was less than the estimate because of higher-than-expected subsidy payments, Mishra said today.

Macquarie is keeping its ``underperform'' rating on the stock ``because high oil prices may result in high subsidies'' and the company's record at finding new reserves is not as good as other explorers, Mishra said today.

Full-year profit rose 8.4 percent to 156.43 billion rupees from 144.3 billion rupees a year ago. The company will pay a final dividend of 13 rupees a share. Revenue rose 21 percent to 608.8 billion rupees.

Indian Oil Corp. and other state-run refiners paid Oil & Natural Gas about $22 less in the fiscal year for crude than the price on international markets.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

Last Updated: June 25, 2007 11:18 EDT