NEW DELHI - Oil & Natural Gas Corp. (ONGC) Wednesday posted a larger-than-expected drop in quarterly net profit, as the state-run explorer gave three times more discounts on crude oil to government-owned refiners which offset benefits from higher oil prices and a royalty reimbursement.
Net profit for the third fiscal quarter ended Dec. 31 fell 5% to INR67.41 billion ($1.37 billion) from INR70.83 billion a year earlier, the company said in a statement. Fifteen analysts polled by Dow Jones Newswires on average expected ONGC to post a net profit of INR69.91 billion.
Sales dropped 2.5% to INR181.24 billion from INR185.86 billion.
The profit decline may hurt ONGC's plans to fund its ambitious INR1.64 trillion capital expenditure target through cash flows. The New Delhi-based company has planned that investment over the five years through March 2017, mainly to explore and develop oil and gas fields.
The company gave discounts worth INR125.36 billion, or $66.77 a barrel, to state-run refiners in the third quarter, compared with INR42.22 billion, or $24.34 per barrel, a year earlier.
ONGC and other state-run upstream companies give discounts on crude oil as part of a government mechanism to compensate refiners, which also retail fuel products, for selling fuels at below-market prices to control inflation.
The discounts shaved off INR71.72 billion from the company's net profit during the latest third quarter. Post discounts, it made $44.96 a barrel on crude oil sales, down 31% from a year earlier.
The discounts also offset a one-time gain of INR31.42 billion, which it received from Cairn India Ltd. as reimbursement of royalty paid to the government for an oil block they own jointly in northwest India.
ONGC owns a 30% stake in the block, but had to pay the entire royalty for production from it as part of an earlier Indian policy to attract investments. Last year, Cairn India agreed to share the royalty and reimburse a part of earlier payouts after ONGC insisted for that to approve a deal for Vedanta Resources PLC to buy a majority stake in the Indian unit of Cairn Energy PLC.
ONGC's crude oil production declined 4% to 6.74 million metric tons and gas production rose marginally to 6.40 billion cubic meters during the quarter from a year earlier. The explorer said it has struck gas off the eastern coast as well as western and north eastern onshore basins last month.
The company, which is struggling to increase or at least maintain production from its aging oilfields, is in initial talks with ConocoPhillips to explore a possible partnership. ConocoPhillips's expertise could help ONGC arrest a slide in production and bring in cash to fund investment plans.
Copyright (c) 2012 Dow Jones & Company, Inc.
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