ONGC Posts Lowest Profit in Six Quarters on Crude Oil Discount

Oil & Natural Gas Corp., India’s biggest energy explorer, posted its lowest quarterly profit in more than a year after giving discounts on crude oil to state-run refiners to compensate them for below-cost fuel sales.

Net income fell 18 percent to 55.6 billion rupees ($1.03 billion) in the three months ended Dec. 31 from 67.4 billion rupees a year earlier, the New Delhi-based explorer said in a stock exchange filing yesterday. That beat the 53.8 billion rupee median estimate of 35 analysts surveyed by Bloomberg. Sales rose 16 percent to 209.9 billion rupees.

Finance Minister Palaniappan Chidambaram’s attempt to narrow the budget deficit by raising diesel prices and giving refiners including Indian Oil Corp. the freedom to set future prices on their own will probably reduce the subsidy ONGC gives on crude oil sales, helping boost earnings. Under a government diktat, the explorer must sell oil at a discount to state refiners, which in turn sell fuels below cost to curb inflation.

ONGC has gained 18 percent this year, compared with a 0.3 percent increase in the benchmark Sensitive Index. The shares gained as much as 3.2 percent to 318.25 rupees and traded at 317 rupees as of 11:50 a.m. in Mumbai.

The price of Brent crude, a benchmark for more than half of the world’s oil, rose 1 percent on an average in the quarter, compared with a year earlier.

Higher Expenses

The explorer’s total expenses increased to 141.60 billion rupees from 120 billion rupees a year earlier, according to the statement. Raw material costs were 1.56 billion rupees, compared with 1.52 billion rupees a year earlier.

While net realization from selling a barrel of oil increased to $47.97 from $44.71, gross realization fell to $110.16 a barrel from $111.48. A one-time income of 31.4 billion rupees had boosted profit in the year-earlier quarter.

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

The explorer is seeking to reverse dropping oil production at unit Imperial Energy Corp.’s fields in Russia’s west Siberian region as it invites bids from surveyors to assess the potential reserves trapped in shale rocks in the Bazhenov formation. Bazhenov may hold as much as 360 billion barrels of recoverable reserves, Bloomberg Industries said in a Dec. 19 report, citing estimates by Russian subsoil agency Rosnedra. Venezuela holds 296.5 billion barrels, the world’s biggest known oil reserves.

The government is also 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 to about $8 per million British thermal units, benefitting producers such as ONGC and Reliance Industries Ltd.

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