ONGC Posts Surprise Profit Drop on Royalties, Weak Gas Price
(Bloomberg) -- Oil & Natural Gas Corp.’s quarterly profits missed estimates for a gain as lower gas revenues and a jump in royalty payments outweighed the boost from higher crude prices.
Net income at India’s biggest oil and gas producer fell 6.1 percent to 43.4 billion rupees ($673.6 million) in the three months ended March, the company said in a statement Friday. That’s below all but two of the 23 analyst estimates compiled by Bloomberg, which averaged 50.7 billion rupees. Sales grew 34 percent to 217.14 billion rupees.
Expenses last quarter rose almost 48 percent to 207 billion rupees, including royalty payments of 24.4 billion rupees to the states of Assam and Gujarat. The jump in costs and drop in profit were partly attributable to the royalty issue, according to Dhaval Joshi, an analyst at Emkay Global Financial.
“The royalty issue is behind us and we don’t expect any further charge on that,” Chairman Dinesh Kumar Sarraf told reporters Friday.
Total expenses also rose as the company made higher provisions for employees’ salaries, which increased from Jan. 1, according to Emkay’s Joshi. Shares in Mumbai fell as much as 2.6 percent to 171.20 rupees.
ONGC produced 6.4 million tons of crude in January-March, 0.8 percent more than a year ago, while natural gas output rose 13 percent to 5.94 billion cubic meters.
The company earned an average $54.91 on every barrel of oil sold last quarter, compared with $34.88 during the same period a year ago. Meanwhile, the price of gas produced in India was fixed at $2.50 per million British thermal units for the six months to March, about a third lower than a year earlier.
“The gas business is no longer profitable for us,” Sarraf said. ”Our cost of production is significantly higher than the current price.”
The price of gas, which the government sets every six months, has been pegged at $2.48 per million Btu until September.
ONGC will maintain capital expenditure in the current fiscal year at around 300 billion rupees and drill about 500 wells, similar to what the company did the previous year, Sarraf said. It declared a final dividend of 0.8 rupees, adding to the 6.75 rupees already paid in two tranches during the year.