India’s state-run Oil and Natural Gas Corp. (ONGC) saw its profit fall 21% in its April-June quarter, raising question marks over the state-run firm’s ability to continue with its exploration drive.
During the three months to June 30, ONGC made a net profit of 42.3 billion Indian rupees (US$632.5 million), down from 53.7 billion rupees (US$803 million) in the same period a year earlier, it said last week.
Its sales also tumbled 21% year on year to 176.7 billion rupees (US$2.64 billion).
ONGC received on average US$46.10 per barrel for the crude oil it sold to refiners during the quarter, down from US$59.08 per barrel a year earlier after adjusting for discounts to state oil marketing companies (OMCs).
The rebate, for selling fuels below cost when oil is expensive, amounted to 10.96 billion rupees (US$163.9 million) in the year earlier period. In the most recent quarter to June 30, it did not offer any discounts on crude.
During the same period, benchmark prices for Brent crude averaged US$47.03 per barrel – down 26% from a year earlier.
The price that ONGC commanded for gas during the quarter also declined, to US$3.06 per mmBtu (US$84.64 per 1,000 cubic metres) from US$4.66 per mmBtu (US$128.90 per 1,000 cubic metres) a year earlier.
The company’s total oil output was also in decline, slipping to 6.34 million tonnes (511,000 bpd) in the quarter from 6.48 million tonnes (522,000 bpd) a year earlier. Its gas output dipped 5.6% to 5.49 bcm.
Although ONGC was quick to assert that its exploration plans and associated spending would remain on track, it is hard to see how the company will have the cash to do so if income or sales fall any further.
The company has said it intends to invest billions of dollars in the next decade on developing oilfields and boosting oil extraction from ageing, increasingly depleted fields. From the quarter’s figures, it is not clear where the budget for this – or for acquiring assets in either India or overseas – will now come from.
This will be a worry for Prime Minister Narendra Modi, who has targeted a 10% reduction in India’s import dependence over the next six years and will rely heavily on ONGC to help him achieve that.ONGC’s share price, however, appears to have defied the gloomy outlook that analysts ascribed to the company, jumping 6.5% to become one of the best performing Sensex stocks last week.
Factors that probably helped support ONGC’s shares include reports that the major plans to acquire a stake in Gujarat State Petroleum Corp.’s (GSPC) gas field in the Krishna-Godavari (KG) Basin and that it is seeking compensation from Reliance Industries Ltd (RIL) for gas migration in the same basin.
GSPC owns an 80% participating interest in the KG block along with Jubilant and GeoGlobal Resources, which each have a 10% stake.
India’s government would have no objections if ONGC and GSPC agreed to a stake sale, according to Minister of Petroleum and Natural Gas Dharmendra Pradhan.