ONGC: Q4 hit by higher costs

Net profit fell 19.5%; higher costs, tax outgo and dry well write-offs take gains way below expectations

State-run petroleum explorer Oil and Natural Gas Corporation (ONGC) on Thursday reported a 19.5 per cent decline in standalone net profit for the quarter ended March 2015 on higher operating costs, lower prices and write-offs of dry wells that did not result in any discovery.

The company posted a net profit of Rs 3,935 crore for the fourth quarter of 2014-15 as compared to Rs 4,889 crore in the corresponding quarter previous fiscal. The profit was way below Bloomberg consensus estimate of Rs 5,620 crore.

The company had to write-off Rs 291 crore of exploration expenditure on dry-wells, which impacted the gains from higher net realisation of $55.63 per barrel during the quarter as compared to $44.87 per barrel in the corresponding quarter.

The profit decline came even as the government had fully exempted the upstream firm from sharing the burden of under-recoveries of oil marketing companies (OMCs) in the form of discounts offered to them in the fourth quarter. While the company's tax expenses were up 11 per cent at Rs 2,321 crore and impacted the numbers, the 26 per cent surge in other income to Rs 1,733.6 crore more than offset the increase in tax and cushioned the decline in net profit.

ONGC’s crude oil production in the fourth quarter though was marginally lower at 6.45 million tonne as opposed to 6.47 million tonnes in the corresponding quarter previous fiscal. Natural gas production also declined 5.83 per cent to 5.81 billion cubic meters (bcm). The revenue at Rs 21,303 crore however, was a tad (0.95 per cent) lower than Rs 21,507 crore the street had estimated. Total income of ONGC during the quarter increased by a marginal 1.6 per cent to Rs 21,647 crore.

“We sold significant amount of crude from Rajasthan, Panna Mukta Tapti (PMT) and Ravva fields apart from value-added products at the international price,” ONGC Chairman and Managing Director D K Sarraf said at a post-results press conference.

For the full financial year 2014-15, ONGC reported 20 per cent decline in net profit to Rs 17,732 crore as compared to Rs 22,094 crore in the previous fiscal (2013-14). Total income also dipped, but by a marginal 3 per cent, to Rs 88,238 crore as compared to Rs 90,602 crore in the previous fiscal. Sarraf said the company wrote off around Rs 10,000 crore last financial year including Rs 2,700 crore write-off only on account of dry wells.

The company said even after the exemption of subsidy burden sharing in the fourth quarter, its total subsidy payout in 2014-15 stood at a staggering Rs 36,300 crore which impacted its profit by Rs 20,437 crore. But FY16 is likely to be better. Sarraf said the company has been exempted from subsidy burden in the first quarter of current fiscal, too, on the basis of a new subsidy sharing formula. The news had come out earlier, leading to gains in its share price.

Given that the results were announced post market hours, ONGC stock could witness a correction on Friday. However, most analysts remain positive on the company given the elimination of subsidy overhang and sound prospects in the long term. The company has made 22 oil and gas discoveries in 2014-15 compared to 14 in the year ago period.