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ONGC Profit Falls to 2-Year Low After Dry-Well Provisions

May 29 (Bloomberg) -- Oil & Natural Gas Corp., India’s biggest energy explorer, reported its lowest profit in eight quarters after charges for wells in which it didn’t find crude oil or natural gas increased and salaries rose.

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.

ONGC is drilling more wells to counter declining oil and gas production from aging fields as demand rises in Asia’s second-biggest energy consumer. The explorer’s third straight quarter of lower profits may hurt its plans to spend 11 trillion rupees by 2030 to raise production and add reserves in India and overseas.

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

The explorer wrote off 47.4 billion rupees on the cost of unsuccessful drilling in the quarter, 33 percent higher than a year earlier, according to the statement. Expenditure on employees more than doubled to 7.36 billion rupees. Depreciation costs rose 77 percent to 23.9 billion rupees.

Higher Costs

“There were a number of charges and higher salary costs in the quarter,” Finance Director A.K. Banerjee told reporters in New Delhi today. “We hope the discounts we give on our sales will fall next year and that will be good for profits.”

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. Finance Minister Palaniappan Chidambaram’s attempt to narrow the budget deficit by raising diesel prices and giving refiners including Indian Oil Corp. the freedom to set gasoline prices will reduce the subsidy ONGC gives on crude oil sales.

ONGC gave discounts worth 123.1 billion rupees in the quarter, compared with 141.7 billion rupees a year earlier. It sold its crude to Indian refiners at $50.85 a barrel compared with $44.32 a barrel.

Gas Production

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 the KG shallow offshore fields and the western offshore basin. The company said it plans to start producing gas from the KG basin 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 company, the nation’s biggest gas producer, will also benefit from the government’s plan to raise 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 domestic gas prices to global benchmarks. If accepted, rates may almost double, benefiting producers such as ONGC and Reliance Industries Ltd.

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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