Soaring crude oil lifts ONGC profits

MUMBAI: Upstream oil major ONGC has been able to post a higher profit on the back of high crude oil prices despite an increasing subsidy burden, increasing deprecation and higher exploration costs. ONGC recorded a net profit of Rs 4,119 crore for the quarter ended June ’06, up 24% over last year.

Turnover for the quarter was Rs 14,677 cr – up 34%. ONGC, which is also celebrating its 50th year, has announced a bonus issue in the ratio 1:2, one bonus share for two shares held. The stock closed at a price of Rs 1,138.25, up by 4.08% against a rise of 1.94% in the Sensex.

The Rs 4,119 crore profit translates into an earning per share (EPS) of Rs 28.88, as against Rs 23.28 during the first quarter of the previous and Rs 21.64 in the preceding quarter. The increase in company’s profitability and turnover has come on largely flat production. ONGC’s crude oil production during the quarter was 6.48m tonnes – marginally lower than 6.488m tons last year.

However, a higher realization on crude oil prices - $45/barrel versus $36/bbl has helped the bottomline. Price realization on crude oil was lower than the actual market price - the company subsidized the downstream companies to the tune of Rs 5,120 cr against Rs 2,786 cr last year. The company also saw a small increase in the price of natural gas that it sold, leading to a gain of over Rs 100 cr.

The EBITDA for the quarter was Rs 8,109 cr against Rs 6,105 cr last year. On the expense side, depreciation has increased from Rs 1,330 cr in the first quarter of last year to Rs 2,221 cr this year. Two factors account for the change – ONGC commissioned a new pipeline in the second quarter of last year which has been depreciated fully in the four subsequent quarters – this being the last.

The hit on this account was Rs 450 crore – this won’t be there from the next quarter onwards. The remainder is accounted for by higher exploration expenses, which also have to be depreciated. Cost of exploration has increased as oil prices have moved up and rates for equipment etc have shot up.

For the second quarter, the company may benefit on two fronts. Firstly, the oil production was lower in the second quarter of last year – after an accident on an offshore oil platform. Secondly, the depreciation expense will also be lower than last year’s figures. The company should be able to better the results in the next quarter.

ET INTELLIGENCE GROUP