Flat Refining Margins, Lower Crude Prices May Weigh On Oil Firms

Flat refining margins and a decline in crude prices is expected to weigh on oil companies’ quarterly earnings.

Seven oil and gas firms are expected to report a 17 percent decline in revenue in the quarter-ended June over the previous three months. Net profit is expected to remain flat, while earnings before interest, depreciation and amortisation may rise 27 percent, according to Bloomberg consensus estimates.

The EBITDA will rise mainly on account of a low base since companies had made royalty payments in the previous quarter. Indian Oil Corporation may also report a jump in EBITDA as it was impacted by one-off entry tax expenses in the previous three months.

The Singapore Gross Refining Margin, the Asian benchmark, remained flat at $6.4 per barrel in the June quarter, causing inventory losses and eroding margins of oil marketing, or downstream, companies like Reliance Industries Ltd., Indian Oil Corporation Ltd., and Bharat Petroleum Corporation Ltd.

Brent crude, the Indian benchmark for oil prices, averaged 8 percent lower over the previous quarter at $50.8 per barrel in April-June. Lower crude prices could hurt realisations of explorers, or upstream companies, like Oil and Natural Gas Ltd. and Oil India Ltd.

GAIL India Ltd., however, will benefit from lower expenses in gas and petro-chemical business. Indraprastha Gas Ltd. is expected to report higher volumes, improving its margins.

Oil and Natural Gas Corporation

• Oil production is expected to fall nearly 2 percent while gas output is likely to remain flat compared to the previous quarter.
• Lower crude prices could bring down realisations by around 5 percent to $52 per barrel.
• Development plans for Krishna-Godavari Basin, commentary on oil and gas production volumes and management view on the proposed merger with Hindustan Petroleum Corporation Ltd. will be key things to watch.

Oil India

• Revenue is expected to fall 2 percent over the previous three months on the back of lower crude prices.
• Volumes are expected to remain flat and realisations are expected to fall 7 percent to $49 per barrel.
• Management commentary on volume growth will be crucial.

GAIL India

• GAIL India’s lower operating expenses in liquefied natural gas and petro-chemical segment will offset the lower production volumes due to planned shutdown of plant at Pata, Uttar Pradesh.
• Net profit is expected to rise 3.6 times as the company had accounted for impairment charges worth Rs 788 crore in the previous quarter.
• Profitability in petrochemical and gas trading business, progress of pipeline projects and visibility on placements of U.S. contracts will be key things to watch.

Reliance Industries

• RIL will see its EBITDA rise marginally as higher petrochemical margins will be offset by lower refining margins and a stronger rupee against the dollar.
• Gross refining margins are expected to fall to $11.2 per barrel from $11.5 in the previous quarter.
• Updates on telecom arm Reliance Jio Infocomm Ltd., joint venture with British Petroleum and progress on core expansions will be the key things to watch.

Indian Oil Corporation

• Revenue, EBITDA and net profit are expected to decline compared to last quarter on the back of lower refining margins and inventory losses.
• Company’s refinery throughput is expected to increase 5 percent to 17.9 million metric tonnes due to contribution from the Paradip refinery.
• GRM’s are expected to fall to $4.2 per barrel as compared to $8.9 per barrel in the fourth quarter of financial year 2017.
• Update on utilisation of Paradip refinery, capital expenditure plans, impact of inventory and forex changes will be key to watch.

Bharat Petroleum Corporation

• Revenue, EBITDA and net profit is expected to decline compared to last quarter on the back of by lower refining margins and inventory losses.
• Company’s refinery throughput is expected to increase 3 percent to 6.2 million metric tonnes, while GRM’s are expected to fall 8 percent to $5.5 per barrel compared to last quarter.
• Update on Kochi refinery expansion and impact of inventory and forex changes will be key to watch.

Indraprastha Gas

• EBITDA margin is expected to improve quarter-on-quarter and year-on-year, led by high volumes and lower reduction in compressed natural gas prices as against the government set gas prices.
• Total volumes may remain flat compared to last quarter, but is expected to rise 11 percent compared to last year.
• Company’s view on expansion to newer geographies and outlook on CNG volumes and gas prices will be crucial.

(These expectations have been compiled from reports of Citi Research, PhillipCapital, Edelweiss, Motilal Oswal, Kotak Securities, Elara and Sharekhan.)