ONGC- Strong F2Q11 Driven by Lower Subsidy Burden:: Morgan Stanley

Visit http://indiaer.blogspot.com/ for complete details �� ��


Oil & Natural Gas Corp.
Strong F2Q11 Driven by
Lower Subsidy Burden


Quick Comment – Strong F2Q11; F2He to remain
strong: ONGC reported strong F2Q11 results with
EBITDA of ~Rs113bn, up 38% QoQ and 28% YoY,
while net profit of Rs53.8bn, which was up 47% QoQ
and 6% YoY, and 5% ahead of our estimate. The strong
results were driven by lower subsidy burden, which was
down 45% QoQ, in line with our estimates, and the full
impact of APM gas price hike. We expect to ONGC to
report strong numbers for second half of the year on our
earlier thesis of a reduced subsidy burden and higher
realization from the natural gas business.
Highest net crude oil realization last 10 quarters:
Net of subsidy of US$16.5bbl, net oil realization was
US$62.8/bbl. We expect ONGC to continue earn
~US$62/bbl of net realization for the rest of the year.
Gross crude oil price realization for the company was
US$79.2/bbl, US$3.1/bbl higher than WTI.
Higher contribution from Natural Gas business:
F2Q11 was the first quarter with will full impact of APM
gas price hike effective June 1. F2Q11 gas realisation
was at US$3.9/mmbtu; up 45%QoQ and 85% YoY.
Crude sales volumes better than expected: Crude
sales at 5.9MMT were up 11.3% QoQ and 6.5% YoY,
driven mainly by optimization of internal consumption
and normalization of inventories that built up in F1Q11.
Oil production at 6.9MT was up ~3.6% QoQ. However,
gas production at 6.3Bcm was down 2.5% QoQ and 3%
YoY due to shut-down at PMT fields.
Higher recouped costs: Drywell write-offs were
Rs24bn, up 178% QoQ and 272% YoY, leading to
recouped costs rising 41% QoQ and 87% YoY.
What does this mean to our estimates? We maintain
our estimates at this time. However, we may have to
adjust our F2011e numbers based on F2Q11 results.
We will revisit our model after the analyst conference
call on October 29, 2010.