ONGC, the country’s largest oil and gas explorer, has seen its crude oil output rise by 4% during April-June in FY17. The government-owned explorer produced 6.4 million tonnes of crude oil, including the joint venture fields, during the first quarter of FY17 against 6.136 million tonnes in the same quarter the previous year, sources told FE. This is in line with analysts’ expectations. “We expect crude oil production from its own field at 5.5 million tonnes while production from joint venture at 0.88 million tonnes,” Dhaval Joshi, research analyst at Emkay Global, said in a results preview report.
Even the average crude price has moved by more than 33% in the first quarter of FY17 against the fourth quarter of FY16. This is still down 26% year-on-year, which would hurt the earnings of ONGC compared to previous year. The positive development for ONGC would be that it is not likely to bear any subsidy burden in the first quarter of FY17. In 2015-16, it shelled out Rs1,133 crore in the first quarter towards compensating IOC, BPCL and HPCL for selling petroleum products below market cost. “We assume that the government will pay entire subsidy for Q1FY17,” Anil Sharma and Ravi Adukia of Nomura said in a July 7 note.
Government subsidy sharing is capped at Rs12/litre for kerosene and Rs 15/kg on domestic cooking gas. The explorer’s natural gas production has seen a drop of more than 5% during the first quarter. The production of natural gas stood at 5.495 billion cubic metre (bcm) during Q1 of current fiscal against 5.818 bcm in the same quarter last year. The drop in natural gas fields is likely to be from onshore and joint venture fields.
Meanwhile, the natural gas prices have dropped which would hurt ONGC revenues. “We expect ONGC to report sequentially higher profitability led by increase in prices of crude oil (increase if $11/barrel quarter on quarter). ONGC will be partially impacted by lower domestic gas price (decrease of $0.8/mBtu quarter-on-quarter),” estimates Kotak Institutional Equities.
Jefferies India said in its first quarter preview that recovery in crude price through the quarter ($47/barrel in Q1 against $35/barrel in Q4) should help the upstream firms record a sequential improvement but earnings are still likely to be “down sharply year-on-year.”