ONGC Profit Drops for 4th Straight Quarter on Subsidy Payments

Oil & Natural Gas Corp., India’s biggest energy explorer, reported a fourth consecutive quarter of lower profit after it sold crude to state-run refiners at steeper discounts.

Net income fell 34 percent to 40.2 billion rupees ($659 million) in the three months ended June 30 from 60.8 billion rupees a year earlier, according to a stock exchange filing yesterday. That missed the 49.3 billion rupee median estimate of 36 analysts surveyed by Bloomberg. Sales fell 4.3 percent to 192.2 billion rupees.

Prime Minister Manmohan Singh’s government is asking state-controlled oil explorers ONGC and Oil India Ltd. to bear a larger portion of the revenue losses state-run refiners incur on selling fuels below the cost of production to help curb inflation. The higher subsidy is cutting the cash reserves of the explorers and putting pressure on capital expenditure plans, according to Oil India Finance Director T.K. Ananth Kumar.

Total cost surged 21 percent to 147 billion rupees, while other expenses increased 44 percent to 45.8 billion rupees, according to the filing. The total tax expenditure declined 38 percent to 17.68 billion rupees.

ONGC rose 1.8 percent to 278.10 rupees in Mumbai yesterday. The shares have gained 3.8 percent this year, compared with a 2.5 percent drop in the benchmark S&P BSE Sensex index. The earnings were announced after trading ended.

Higher Discounts

The explorer gave 126.2 billion rupees of discounts to refiners including Indian Oil Corp. in the quarter, compared with 123.5 billion rupees a year earlier, according to the statement.

Lower oil prices in the quarter also eroded earnings. The price of Brent crude, a benchmark for more than half of the world’s oil, fell 5 percent to an average $103.35 in the quarter, compared with a year earlier.

ONGC plans to spend 11 trillion rupees by 2030 to raise production and add reserves in India and overseas. Expenditure in the year through March 31, 2014 is expected to be 350 billion rupees, according to Finance Director Aloke Kumar Banerjee. The company spent 295 billion rupees in the last financial year, less than the planned 335 billion rupees.

The government in June allowed producers including ONGC and Reliance Industries Ltd. to raise natural gas prices starting April 1.

Rates will be set according to a 12-month weighted average of gas prices in the U.S. and U.K. and the import prices for Japan, an Asian benchmark, and India. This may increase local prices by about 90 percent from $4.2 per million British thermal units, according to oil secretary Vivek Rae.

An increase of $1 in local gas prices will boost ONGC’s annual profit by 20 billion rupees, Banerjee said June 30.

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