ONGC Profit Slumps to Lowest in 7 Quarters on Oil Discounts

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, reported its lowest profit in seven quarters after selling crude at steeper discounts.

Net income fell 40 percent to 33.9 billion rupees ($603 million), or 3.96 rupees a share, in the fourth quarter ended March 31, from 56.4 billion, or 6.6 rupees a share, a year earlier, the New Delhi-based company said in a regulatory filing today. That missed the 49.3 billion-rupee median estimate of 36 analysts surveyed by Bloomberg. Net sales rose 14 percent to 213.9 billion rupees.

Finance Minister Palaniappan Chidambaram’s attempt to narrow the budget deficit by raising diesel prices and giving refiners including Indian Oil Corp. (IOCL) the freedom to set gasoline prices will reduce the subsidy ONGC gives on crude oil sales. The government orders the explorer to sell oil at a discount to state refiners, which in turn sell fuels below cost to help curb inflation.

ONGC has gained 25 percent this year, compared with a 3.7 percent increase in the benchmark S&P BSE Sensex. (SENSEX) The shares rose 0.3 percent to 334.95 rupees at the close in Mumbai today. The earnings were announced after trading ended.

Total expenses rose to 182.2 billion rupees from 126.7 billion rupees a year earlier, the company said in the statement. The subsidy was 123.1 billion rupees in the quarter, compared with 141.7 billion rupees a year earlier.

Capital Spending

The company, which spent 295 billion rupees in the fiscal year ended March 31, has a capital expenditure target of 350.5 billion rupees for this fiscal year, Chairman Sudhir Vasudeva told reporters in New Delhi today.

ONGC, which produced 51.45 million tons of oil equivalent in the last fiscal year, expects to produce 52.41 million tons in the year ending March 31. The company today reported two discoveries -- at KG shallow offshore and the western offshore basin. The company said it plans to start producing gas from the KG basin field by 2016.

The price of Brent crude, a benchmark for more than half of the world’s oil, fell 4.9 percent to an average $112.64 in the quarter compared with a year earlier.

The lower profit may hurt ONGC’s plan to spend 11 trillion rupees by 2030 to raise production and add reserves in India and overseas. It plans to expand exploration in offshore areas in India and buy shale gas and oil sands properties overseas, Finance Director A.K. Banerjee said Oct. 2.

The company, the nation’s biggest natural gas producer, will also benefit from the government’s plan to raise natural gas prices. The oil ministry is studying a report by a panel led by Chakravarthy Rangarajan, chief of the prime minister’s Economic Advisory Council, that recommends linking natural gas prices in India to global benchmarks. If accepted, rates may almost double, benefitting producers such as ONGC and Reliance Industries Ltd. (RIL)

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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