Oil and gas producers ONGC and Oil India are set to report strong numbers during April-June 2015, owing to better realisations from crude oil sales.
Oil and gas producers ONGC and Oil India are set to report strong numbers during April-June 2015, owing to better realisations from crude oil sales. This is because the government-owned companies would have to fork out meagre funds towards compensating PSU oil-marketing companies post the government’s new subsidy sharing formula. The Indian basket of crude oil averaged at $61.47/barrel in the quarter.
The Narendra Modi government has rolled out a subsidy sharing mechanism according to which upstream players such as ONGC and Oil India would have to bear no subsidy if the average crude oil price during April-June remains below $60/barrel. If the price is between $60 and $100/barrel, they would have to shell out 85% of the incremental price towards oil subsidy. The sharing would be 90% if crude crosses $100/barrel.
“The total subsidy bill estimated for Q1FY16 is Rs 10,600 crore. Of this, we expect subsidy burden Rs 670 crore on ONGC and around Rs 50 crore on OIL if the new subsidy sharing formula is followed. The remaining will be compensated by the government. We estimate ONGC’s gross realisation at $63/barrel and for OIL at $61.5/barrel,” said a Mumbai-based analyst.
In Q1 FY15, ONGC sold every barrel of crude oil at $109.48. However, after discounting OMCs, its net realisation fell to $47.15/barrel, while OIL realised crude price of $52.35/barrel against gross of $108.35/barrel.
Going by the latest expectation figures, ONGC’s oil subsidy bill would drop by 95% to just
Rs 670 crore during April-June 2015 against Rs 13,200 crore in the same months the previous year. The largest oil and gas explorer in the country is expected to post a net profit of over Rs 5,670 crore in Q1 of the current fiscal, which would be 18.6% higher compared with Rs 4,781.8 crore in the year-ago quarter.
“The robust y-o-y increase in profitability despite lower global crude oil prices reflects higher net crude realisations,” said Kotak Institutional Equities Research in its July 3 report.
Better profitability for ONGC is crucial at the moment, when it has lined up capital expenditure to the tune of Rs 30,000 crore. At the same time, petroleum minister Dharmendra Pradhan in a recently held review has urged the explorer to fast track development of its deepwater block – KG-DWN-98/2 in the KG basin.
In a recent meeting with Nripendra Misra, principal secretary to the PM, the ONGC management said it would cost to the tune of $5-6 billion to drill out gas from its KG basin block, which is expected in 2018-19. The block is envisaged to produce about 30 mmscmd of natural gas at its peak. ONGC is in the process of finalising the field development plan, which would be submitted to the Directorate General of Hydrocarbons for approval.
Similarly, for OIL the subsidy bill would drop by 97% to just Rs Rs 50.2 crore in April-June 2015 against Rs 1,846.55 crore in the same months the previous year. Kotak expects OIL to report 6% higher profit after tax in Q1FY16 at Rs 903.3 crore against Rs 851.9 crore in the previous year.
1.ONGC net realisation likely to be $63/barrel in Q1FY16 against $47.15/barrel in Q1FY15
2.Explorer’s higher profitability to support deepwater project in KG basin
3.OIL net realisation expected at $61.5/barrel, against $52.35/barrel in Q1FY15