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Oil and Natural Gas Corporation (Neutral): 3QFY11: Operationally in-line; strong headline due to exceptionals
• 3Q FY11 result beats the street, maintain Neutral: ONGC reported
strong headline 3Q profits of Rs70.8B (up 31% q/q), with the company
booking Rs19B in revenues from the gas pool account this quarter.
Adjusted profits were in line with estimates. We maintain our Neutral
rating on continuing uncertainty on upstream subsidy share.
• Gas pool revenues boost profits: ONGC booked Rs19B of revenues
form the gas pool account this quarter, being the primary reason for the
earnings beat. The govt. has retained Rs4B in the gas pool for any future
contingency. The gas pool mechanism will continue, with settlements
likely to be annual, so future accruals would likely be significantly lower
than this quarter.
• Volumes disappoint: ONGC sales volumes were a tad disappointing,
with total oil volumes marginally lower q/q, and gas volumes rising 1%
q/q, despite the restart of the PMT west coast fields.
• Fewer dry wells: DDA expenses were 17% lower sequentially, as the
company had lower dry well write offs - down 45% q/q. ONGC drilled a
total of 96 wells (3 deep water, 15 shallow water and 78 onshore) this
quarter, including 29 exploratory wells.
• Subsidy drag continues: ONGC’s subsidy payout for the quarter stood
at Rs42.2bn (up 40% q/q), as higher crude levels led to accelerating
marketing losses at the R&M companies. The govt. continued to allot
33% of the losses to the upstream sector. ONGC’s net crude realization
was at $64.8/bbl in 3Q.
• Maintain Neutral: While 3Q profit was ahead of consensus, operational
results were largely in-line. With uncertainty over the final quantum of
subsidy share this year in light of high crude levels, we stay Neutral. Our
Sep-11 PT of Rs1,375 is based on 4x EV/EBITDA, at a 10% discount to
regional peers given ongoing uncertainty over the subsidy-sharing
regime. Key upside risks to our PT are progressive government policy
decisions and new E&P discoveries, while a key downside risk is oil
prices trending below $70/bbl.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil and Natural Gas Corporation (Neutral): 3QFY11: Operationally in-line; strong headline due to exceptionals
• 3Q FY11 result beats the street, maintain Neutral: ONGC reported
strong headline 3Q profits of Rs70.8B (up 31% q/q), with the company
booking Rs19B in revenues from the gas pool account this quarter.
Adjusted profits were in line with estimates. We maintain our Neutral
rating on continuing uncertainty on upstream subsidy share.
• Gas pool revenues boost profits: ONGC booked Rs19B of revenues
form the gas pool account this quarter, being the primary reason for the
earnings beat. The govt. has retained Rs4B in the gas pool for any future
contingency. The gas pool mechanism will continue, with settlements
likely to be annual, so future accruals would likely be significantly lower
than this quarter.
• Volumes disappoint: ONGC sales volumes were a tad disappointing,
with total oil volumes marginally lower q/q, and gas volumes rising 1%
q/q, despite the restart of the PMT west coast fields.
• Fewer dry wells: DDA expenses were 17% lower sequentially, as the
company had lower dry well write offs - down 45% q/q. ONGC drilled a
total of 96 wells (3 deep water, 15 shallow water and 78 onshore) this
quarter, including 29 exploratory wells.
• Subsidy drag continues: ONGC’s subsidy payout for the quarter stood
at Rs42.2bn (up 40% q/q), as higher crude levels led to accelerating
marketing losses at the R&M companies. The govt. continued to allot
33% of the losses to the upstream sector. ONGC’s net crude realization
was at $64.8/bbl in 3Q.
• Maintain Neutral: While 3Q profit was ahead of consensus, operational
results were largely in-line. With uncertainty over the final quantum of
subsidy share this year in light of high crude levels, we stay Neutral. Our
Sep-11 PT of Rs1,375 is based on 4x EV/EBITDA, at a 10% discount to
regional peers given ongoing uncertainty over the subsidy-sharing
regime. Key upside risks to our PT are progressive government policy
decisions and new E&P discoveries, while a key downside risk is oil
prices trending below $70/bbl.
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