Oil & Gas Firms To Gain From Higher Crude Prices, Refining Margins

Oil and gas companies are expected to report strong core earnings in the second quarter as higher gross refining margins will benefit refiners and explorers will gain from a sequential rise in crude oil prices.

For the September ended quarter, nine oil and gas firms are expected to report a 7 percent increase in revenue over the previous three months. Net profit is expected to rise 27 percent, while earnings before interest, depreciation and amortisation may increase by 26 percent, according to data compiled by BloombergQuint.

The improved performance will be led by refiners, which are expected to realise gains on inventory compared to losses in the previous quarter.

In the quarter ended September, the Singapore gross refining margin – the Asian benchmark – averaged around $8.3 per barrel, up 30 percent compared to the previous three months, driving profits of oil marketing or downstream companies such as Hindustan Petroleum Corporation Ltd., Reliance Industries Ltd., Indian Oil Corporation Ltd., and Bharat Petroleum Corporation Ltd.

Brent crude, the Indian benchmark for oil prices, averaged at $52.1 per barrel, 2.5 percent higher compared that a quarter ago. Higher global crude oil prices will improve earnings of upstream companies such as Oil and Natural Gas Ltd. and Oil India Ltd. by lifting their realisations.

GAIL (India) Ltd.’s earnings are likely to be firm, given higher petrochemical volumes and improved LPG realisations. Indraprastha Gas Ltd. and Petronet LNG Ltd., are expected to report steady numbers on higher volumes.

ONGC

• Expect oil and gas production to rise by 2 percent each over last quarter.
• Crude oil realisations are expected to rise 3 percent quarter-on-quarter to $52.52 per barrel on account of higher prices.

Oil India

• Crude oil realisations are expected to rise 4 percent quarter-on-quarter to $50.3 per barrel on higher prices.
• 2 percent rise in volumes coupled with higher crude prices could result in 3 percent rise in revenue and 19 percent increase in net profit.

Reliance Industries

• Gross refining margin expected to rise 5 percent over the previous quarter at $12.5 per barrel. However, premium over the benchmark would decline 24 percent to $4.2 per barrel.
• Petrochemical business will be steady on the back of high volumes.

Indian Oil Corporation

• Revenue, EBITDA and net profit are expected to rise compared to last quarter on the back of higher refining margins and inventory gains.
• Company’s refinery throughput is expected to marginally rise compared to last quarter to 17.7 million metric tonnes. GRM is expected at $9.8 a barrel compared to $4.3 per barrel in the first quarter of financial year 2017-18.

Bharat Petroleum Corporation

• Revenue, EBITDA and net profit expected to rise on the back of higher refining margins and inventory gains.
• Company’s refinery throughput expected to remain unchanged at 6.4 million tonnes, while GRM is likely at $9.2 per barrel compared to $4.9 per barrel a quarter ago.

Hindustan Petroleum Corporation

• Revenue, EBITDA and net profit is expected to rise compared to last quarter on the back of higher refining margins and inventory gains.
• Company’s refinery throughput is expected to remain unchanged compared to last quarter to 4.5 million metric tonnes, while GRM’s are expected to come in at $9.3 per barrel as compared to $5.9 per barrel in the last quarter.

GAIL India

• GAIL’s net profit is expected to rise 12 percent, driven by an uptick in petrochemical profits and a rise in gas transmission volumes.
• Overall earnings before interest, tax, depreciation and amortisation to grow 2 percent as higher petchem EBITDA will be offset by lower LPG EBITDA.
• EBITDA for petchem expected to improve on higher volumes, while it will decline for LPG due to lower realisations.

Petronet LNG

• Petronet LNG is expected to report a steady second quarter, led by a marginal increase in volumes and higher spot regasification realisation.
• Dahej plant utilisation expected in the range of 103-105 percent, while that of Kochi plant will be 13-15 percent in the second quarter.

Indraprastha Gas

• The company is expected to continue its double-digit volume growth. Overall volumes expected to grow 10-12 percent, compared to last year.
• EBITDA margins to marginally fall to Rs 5.9 per standard cubic metre due to some impact of GST.

(These expectations have been compiled from reports of Citi Research, Motilal Oswal, Prabhudas Lilladher, Morgan Stanley, IDFC Securities, Edelweiss Securities, IDBI Securities and ICICI Direct.)