ONGC: Stagnant output still a concern

State-owned oil exploration company ONGC disappointed with its earnings in the June quarter, with a sharp 33% drop in net profit owing to a jump in expenses without any matching growth in revenues.

The subsidy burden remained high too, but without much of a change from the figure a year ago. ONGC’s operating costs surged 21% year-on-year while revenues dipped 4.3% to Rs 19,218.3 crore.

The company reported a 78% jump in staff costs, 31% growth in exploration write-offs and 44% increase in other expenses. Overall, the company ended up spending more, but failed to maintain revenues. As a result, operating profits dipped 33% and pre-tax profits slipped 35% to Rs 2,332.5 crore, as higher depreciation (16.8%) too weighed.

The company’s subsidy burden remained above Rs 12,000 crore for the seventh consecutive quarter — it has been at these levels in nine out of the past ten quarters — but it was just 2.2% higher y-o-y, and hence, was not the primary reason for the disappointing numbers. ONGC’s crude production dipped 0.5% during the quarter to 5.1 million tonnes, while natural gas production was 2.5% lower at 5.77 billion cubic meters.

The company has for long been battling stagnation in production, but expects FY14 to show a reversal in trend. But the results are yet to show. When compared with the Jan – March 2013 quarter, its performance was better, thanks mainly to a 67% drop in exploration write-offs. However, the company typically books a large chunk of such expenses in the last quarter of the financial year.