With the 18% reduction in domestic natural gas price effective October 1, state-owned explorer ONGC would take a hit of Rs 1,059 crore on its profit after tax (PAT) in the second half of the fiscal.
According to a circular from the Petroleum Planning and Analysis Cell (PPAC), the price of natural gas from domestic fields would drop to $4.24/mBtu from October 1 on net calorific value (NCV) basis, from $5.18/mBtu previously. The revised price on a gross calorific value (GCV) basis would be $3.82/mBtu.
The new price, determined on the basis of a formula linked to select global gas price indices, would be valid for six months, that is, till March 2016. “For the second half of FY16, there is going to be a negative impact with revenues dropping by Rs 2,046 crore on our revenue generation level and profit before tax by Rs 1,620 crore. The impact of the price reduction on PAT would be Rs 1,059 crore,” said A K Srinivasan, director (finance) of ONGC.
The fall in prices is negative for other gas producers — Reliance Industries, Cairn and Oil India — as well, but the stocks of these companies have already factored in the price drop. RIL’s KG D6 production is now at an all-time low of 10-11mmscmd, a far cry from the peak level of 69 mmscmd achieved in March, 2010.
The gas price formula, which tweaked the one proposed by the Rangarajan committee, was approved by the Narendra Modi government in October last year. While the price was fixed at $5.61/mBtu for the period November 2014 to March 2015, it was revised to $5.18/mBtu for the subsequent six months.
Of the total domestic gas production of around 75 mmscmd, ONGC’s share is about 62 mmscmd at present.
The Indraprastha Gas stock jumped 8.3% to Rs 498.70 intra-day, the most since July 1, to close at Rs 478.05. Its rival player, Gujarat State Petronet, saw a spike of 3.2% after the news to close at Rs 117.70. ONGC fell as much as 1.9% during the day but closed 1.35% higher at Rs 229.50, while Oil India fell 0.88% to close at Rs 422.75.
Talking about the outlook on gas prices, Srinivasan said that these are periodic losses and business has to continue.
“We would have some concerns on internal generation of revenue, but certainly the prices would not remain at this level. It have to have some movement. We expect some positive to happen on this,” he added.