ONGC Gains Most Since June as Profit Boosts Stake Sale

Oil & Natural Gas Corp. gained the most in seven months in Mumbai after posting a record profit in the third quarter, potentially boosting investor confidence in a share sale likely to raise 126 billion rupees ($2.7 billion).

ONGC surged 4 percent, the most since June 25, to 1,177.80 rupees at the close, giving the company a market value of about $55 billion. The stock has dropped 9 percent this month compared with the benchmark Sensitive Index’s 11 percent decline.

“The stock was close to the floor,” said Alok Deshpande, an analyst at Elara Securities Ltd. “Investors should look to buy as any positive news flow should lead to a pickup in the stock. And the results were a positive.”

The government plans to sell a 5 percent stake in the state-run explorer in March as Prime Minister Manmohan Singh raises funds to build roads, ports and power stations. ONGC proposes to recover royalties paid on behalf of partner Cairn India Ltd. on sales from India’s biggest onshore oil deposit in Rajasthan in a bid to increase profit.

Net income in the three months ended Dec. 31 more than doubled to 70.8 billion rupees, New Delhi-based ONGC said in a statement to the Bombay Stock Exchange on Jan. 28. That beat the mean estimate of 54.1 billion rupees in a Bloomberg survey of 19 analysts, helped by higher crude oil and natural gas prices and a one-time 19 billion rupee payment of dues from gas sales.

Cairn Royalty

The state-run explorer will ask the oil ministry to include the royalty payments on crude oil produced from the Rajasthan block in the project cost, which can then be recovered from the sale of oil, Chairman R.S. Sharma told reporters in New Delhi yesterday. The ministry is reviewing Vedanta Resources Plc’s bid to buy a majority stake in Cairn India.

ONGC owns 30 percent in the Rajasthan block and pays royalties on the entire output, an incentive offered to attract overseas explorers to India before the government started auctioning fields in 1999.

Cairn and Vedanta need to get ONGC’s approval for the planned $9.6 billion transaction, said Sharma, who retired today. ONGC decided at a board meeting Jan. 29 not to make a counterbid for Cairn India.

A.K. Hazarika, director for onshore operations, has been given additional charge as chairman and managing director for three months starting tomorrow or until a successor is named, the government said in a statement.

Stake Sale

The ONGC stake may be sold in March, Disinvestment Secretary Sumit Bose said Jan. 21. The sale would raise $2.7 billion for the government, based on the current share price.

The company approved a special midyear dividend, a stock split and free shares for investors in December in preparation for the stake sale.

Citigroup Inc., Nomura Holdings Inc., Bank of America Corp., HSBC Holdings Plc, JM Financial Services Ltd. and Morgan Stanley, may manage ONGC’s share sale, two people with knowledge of the matter said Jan. 16.

ONGC sold crude oil at $64.79 a barrel, an increase of 12 percent from a year earlier, according to the earnings statement. The company supplies oil to state refiners at a discount to partially compensate them for selling fuels below cost.

The discount given in the third quarter rose 21 percent from a year earlier to 42.2 billion rupees, ONGC said.

Subsidy Burden

“Investors want more clarity on how ONGC will share the subsidy burden, especially ahead of the planned follow-on offering,” said Jagdish Meghnani, an oil and gas analyst at Alchemy Share & Stock Brokers Ltd. in Mumbai. “The government has to be specific about how much subsidy ONGC will bear exactly when oil prices are trading at a particular price range.”

India more than doubled the price of natural gas produced from fields awarded to state explorers. The price was increased to 6,818 rupees per thousand cubic meters from 3,200 rupees, the first revision since 2005.

Crude oil in New York climbed 12 percent to an average of $85.24 a barrel in the three months ended Dec. 31 from a year earlier, according to data compiled by Bloomberg. Prices rose 15 percent in 2010 as demand increased from China and India.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.