State-run ONGC has produced marginally less oil and gas during the third quarter of FY16 against the same period previous year. The explorer could meet the output target only for crude oil, while it missed targets for gas production across all projects.
Data compiled by FE shows that the consolidated production (ONGC plus joint venture fields) of crude oil during Q3FY16 stands 1.21% lower at about 6.53 million tonne against 6.61 million tonne in the corresponding quarter previous year. This is primarily because of lower production from onshore fields. However, the actual output is 101.5% of the target for the quarter set at 6.43 million tonne.
During October-December 2015, natural gas output dropped 3.33% to 5.8 billion cubic metre against 6 bcm in the three months last year. ONGC could not meet the target of producing 6.4 bcm of gas in these months.
However, the lower output coupled with reduced oil and gas prices are unlikely to impact the profitability of ONGC. This is because the state-run firm have been relieved from footing a chunk of oil subsidy bill. In the third quarter of FY15, ONGC’s gross selling price of crude was reported at $76/barrel, while net realisation was drastically down to $34/barrel, after forking out Rs 9,458 crore towards subsidising state-run oil marketing companies for selling fuel below market price.
In the third quarter of FY16, analysts expect ONGC to realise $44.6/barrel of crude price. The state-run company is expected to report a net profit of around Rs 3,500 crore on net sales of Rs 18,500 crore.
ONGC shares have lost around 11.5% of their value in 2016, while the benchmark Sensex has declined 9% during the period. In 2015, the stock lost about 29% of its value, while Sensex was down 5%. On Wednesday, the stock closed at Rs 214, down 2.01%.
Recently, Moody’s Investors Service has placed the ratings of 120 oil and gas companies on review for downgrade. These reviews reflect a mix of declining prices that are near multi-year lows, weakening demand and a prolonged period of oversupply that will continue to significantly stress the credit profiles of companies in the oil and gas sector, Moody’s said.
“As the increase in gas prices was not large, and prices are on a declining trend, it is not encouraging investment to sustain even current production, let alone development of existing discoveries. Similarly, as the government has not announced the premium for new discoveries (and expectations are not of very high premium), the likelihood of large-scale investment remains low in the short-to-medium term, in our view,” Nomura said in a January 18 report.
At the current scenario when the crude oil and natural gas prices are heading towards bottom out and absence of any incentives from government makes it is economically difficult for ONGC to develop the new deep water blocks in KG or Mahandi basin, which could boost its production.