Top India Explorer’s Profit Slumps on Oil Crash, Output Drop

(Bloomberg) -- Oil & Natural Gas Corp. posted a 92% plunge in profit after crude prices crashed, production declined and demand for natural gas took a hit from a nationwide lockdown.

• Net income was 4.96 billion rupees ($68 million) in the three months ended June, compared with 59.8 billion rupees a year ago, according to a company filing Tuesday. Revenue contracted 51% to 130.1 billion rupees

Key Insights

• India’s biggest explorer benchmarks its oil to Brent crude, which plunged more than 51% year-on-year during the quarter. Prices for its natural gas, decided by the Indian government, dropped 35%.
  • A lockdown to combat the spread of the coronavirus, imposed at the end of March, pushed gas production down by 13% from a year earlier during the quarter, while demand slumped as consumers stayed home.
• Shrinking profits reduce the company’s investment capability in new projects as it struggles to maintain production from older fields and widen its energy portfolio beyond hydrocarbons.
• The company, which used to be India’s most profitable enterprise until a few years ago, plans to invest more than 860 billion rupees in 27 projects. In June, it said it would review its expenditure plans in view of the coronavirus outbreak.
• While a weaker rupee, which fell 9% against the dollar during the quarter, helps buoy ONGC’s sales when converted into the local currency, it also increases the interest payments on its dollar-denominated debt.

Market Reaction

• Shares declined 3.2% on Tuesday, extending the drop in the explorer’s shares to nearly 40% this year. The main S&P BSE Sensex closed 0.7% higher.

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• The company earned an average $28.72 a barrel on oil sold in the quarter, 57% less than a year ago. It sold gas at $2.39/mmBtu. Average cost of gas production is $3.7/mmBtu and over $5/mmBtu for newer deepwater projects, Finance Director Subhash Kumar said in July.
• Total oil output fell 3.5% on year to 5.7 million tons, while gas production declined 13.6% to 5.5 billion cubic meters, according to a company statement.

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