Crude push for ONGC

ONGC’s profit growth has benefited from higher crude oil prices, even as production has remained flat. This has been the case for a few quarters now. Given the oil demand-supply situation, and other factors responsible for keeping oil prices up, the situation is unlikely to change in the near future. On the flip side, the company lacks serious investment opportunities in the domestic market – one reason for its zero-debt status and high dividend payouts.

ONGC’s growth in the future is more likely to come from subsidiary ONGC Videsh. OVL’s crude oil production is already one-fourth of the parent company at 6.4m tonne. OVL has been buying up properties aggressively around the world. During the first quarter, the company purchased a 15% stake in a block in Brazil, from which it could eventually get 15,000 barrels/day (0.75m tonne per annum).

Last year’s major accident in ONGC’s Bombay High offshore oil fields resulted in loss of production – especially during the second and third quarters of ’05. Having normalised now, the next two quarters will show volume growth too, and if prices remain high, then profit growth will be better.

The company’s crude oil production was 5.4m tonne in the second quarter of last year against a production of 6.8m tonne in the first quarter of this year. Another positive for the company will be lower depreciation in the coming quarters – the first quarter included an item of Rs 450 crore which won’t be there in subsequent results.