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Oil and Gas
Brent crude oil prices increase 10.7% QoQ to US$116.7 per barrel
High liquidity and a weak monetary policy in the global markets led
to 52.7% YoY and 10.7% QoQ increase in average Brent crude oil
prices to US$116.7 per bbl in Q1FY12 (historically third highest
quarterly average). Brent crude oil prices declined to ~US$112 per
bbl at the end of the current quarter after touching a high of
~US$127 per bbl in April on International Energy Agency’s (IEA)
decision to release 60 million bbls of government oil that had been
held in the strategic reserve oil stockpile. However, higher average
oil prices would increase the realisations and profitability of the
exploration and production (E&P) companies. Cairn India, ONGC,
OIL India and RIL would be the key beneficiaries.
Gross under-recoveries for Q1FY12E at ~| 43,000 crore
Higher crude oil prices would increase the estimated gross crude oil
under-recoveries from | 31,230 crore in Q4FY11 to | 42,938 crore in
Q1FY12E. We have modelled upstream companies share of subsidy
burden at 33.3% in Q1FY12E on the basis of media reports. We
estimate upstream, downstream and government will bear subsidy
burden of | 14,311 crore, | 3,779 crore (8.8% share) and | 24,848
crore (57.8% share), respectively, in Q1FY12. Hence, we believe that
oil marketing companies (HPCL, BPCL and IOC) would report profits
in the current quarter against loss in the corresponding quarter of
the previous year.
Gross refining margin to increase QoQ
Singapore gross refining margins (GRM) have increased QoQ from
$7.4 per barrel in Q4FY11 to $8.5 per barrel in Q1FY12 mainly on
account of higher spread on middle distillates in Asia. The shutdown
of some refineries in Japan also led to higher GRMs for the quarter.
This would benefit refiners like RIL, Essar Oil, CPCL and MRPL.
Lower domestic gas volumes to be replaced by higher priced LNG
The decline in gas production from the Reliance KG-D6 basin from
~60 mmscmd in Q1FY11 to ~48 mmscmd in Q1FY12E has led to
higher import of costlier priced LNG from the global markets. Hence,
large gas transportation companies would report muted volumes
YoY. However, the city gas distribution (CGD) companies would
report a steady increase in YoY volumes on the back of higher
demand from the industrial and CNG segment
Company specific view
Company Remarks
Bharat
Petroleum
We expect 57.4% YoY increase in revenues due to a 7.6% increase in retail sales
volumes to 7.9 MT and higher product prices. We expect BPCL to report profits in
the current quarter as against a loss in the last quarter YoY as we have assumed the
government will share 57.8% of total under-recoveries. We have modelled net underrecoveries
for OMCs at 8.8% in FY12E
Cairn India
Ltd
Revenues would increase 362.5% YoY due to higher production from Mangala field
and higher oil prices. The net oil & gas production is expected to increase 119.5%
YoY to 98,361 boepd while oil realisation is expected to increase by 42.9% YoY to
$102.9 per barrel. We have not assumed royalty payment for the quarter
Gujarat Gas Volumes are expected to increase 7.4% YoY to 3.5 mmscmd on account of an
increase in LNG volumes. Realisations would improve 40.6% YoY to 19.7 per scm to
pass on higher gas costs to the customers. Margins would decline YoY by 120 bps
to 21.1% in Q2CY11E on account of higher procurement of LNG
GSPL Revenues are expected to remain flat due to lower gas volumes of 35.8 mmscmd in
Q1FY12 against 36.2 mmscmd YoY. We expect a marginal increase in transmission
charges from | 0.76 per scm to | 0.78 per scm YoY. A change in the depreciation
policy would mainly contribute to profit growth during the quarter
Hindustan
Petroleum
We expect a 64.1% YoY increase in revenues due to a 7.1% increase in retail sales
volumes to 7.2 MT and higher product prices. We expect refining margins of $6.9
per bbl against $3.7 per bbl YoY and net under-recoveries for OMCs at 8.8% in FY12E
Indraprastha
Gas
Revenues would increase 67.5% YoY on account of a 27% increase in sales volume
to 3.1 mmscmd and 30.8% increase in gross realisation to | 22.2 per scm. However,
margins are expected to decline to 26.6% due to an increase in gas purchase prices
Oil India Revenues are expected to increase YoY mainly due to higher oil and natural gas
realisations. We expect oil production of 6.77 mmboe (higher 17.2% YoY due to
shutdown of NRL refinery last year), subsidy of $51.8 per bbl (| 1560 crore) and net
realisation of $61.3 per bbl in Q1FY12E against $49.7 per bbl YoY
Petronet LNG We expect robust revenues due to higher volumes as well as realisations. We
expect volumes to increase 37.2% YoY to 130.5 trillion British thermal unit (2.5 MT)
in Q1FY12 on account of lower domestic gas production. PAT is expected to
increase due to higher regasification margins of | 33.3 per mmbtu
Shiv Vani Oil We expect revenues to decline marginally by 1% YoY on account of flat order book
of ~| 2,700 crore. The EBITDA margin is expected to increase 250 bps YoY to
46.5% in Q1FY12E
Source: ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil and Gas
Brent crude oil prices increase 10.7% QoQ to US$116.7 per barrel
High liquidity and a weak monetary policy in the global markets led
to 52.7% YoY and 10.7% QoQ increase in average Brent crude oil
prices to US$116.7 per bbl in Q1FY12 (historically third highest
quarterly average). Brent crude oil prices declined to ~US$112 per
bbl at the end of the current quarter after touching a high of
~US$127 per bbl in April on International Energy Agency’s (IEA)
decision to release 60 million bbls of government oil that had been
held in the strategic reserve oil stockpile. However, higher average
oil prices would increase the realisations and profitability of the
exploration and production (E&P) companies. Cairn India, ONGC,
OIL India and RIL would be the key beneficiaries.
Gross under-recoveries for Q1FY12E at ~| 43,000 crore
Higher crude oil prices would increase the estimated gross crude oil
under-recoveries from | 31,230 crore in Q4FY11 to | 42,938 crore in
Q1FY12E. We have modelled upstream companies share of subsidy
burden at 33.3% in Q1FY12E on the basis of media reports. We
estimate upstream, downstream and government will bear subsidy
burden of | 14,311 crore, | 3,779 crore (8.8% share) and | 24,848
crore (57.8% share), respectively, in Q1FY12. Hence, we believe that
oil marketing companies (HPCL, BPCL and IOC) would report profits
in the current quarter against loss in the corresponding quarter of
the previous year.
Gross refining margin to increase QoQ
Singapore gross refining margins (GRM) have increased QoQ from
$7.4 per barrel in Q4FY11 to $8.5 per barrel in Q1FY12 mainly on
account of higher spread on middle distillates in Asia. The shutdown
of some refineries in Japan also led to higher GRMs for the quarter.
This would benefit refiners like RIL, Essar Oil, CPCL and MRPL.
Lower domestic gas volumes to be replaced by higher priced LNG
The decline in gas production from the Reliance KG-D6 basin from
~60 mmscmd in Q1FY11 to ~48 mmscmd in Q1FY12E has led to
higher import of costlier priced LNG from the global markets. Hence,
large gas transportation companies would report muted volumes
YoY. However, the city gas distribution (CGD) companies would
report a steady increase in YoY volumes on the back of higher
demand from the industrial and CNG segment
Company specific view
Company Remarks
Bharat
Petroleum
We expect 57.4% YoY increase in revenues due to a 7.6% increase in retail sales
volumes to 7.9 MT and higher product prices. We expect BPCL to report profits in
the current quarter as against a loss in the last quarter YoY as we have assumed the
government will share 57.8% of total under-recoveries. We have modelled net underrecoveries
for OMCs at 8.8% in FY12E
Cairn India
Ltd
Revenues would increase 362.5% YoY due to higher production from Mangala field
and higher oil prices. The net oil & gas production is expected to increase 119.5%
YoY to 98,361 boepd while oil realisation is expected to increase by 42.9% YoY to
$102.9 per barrel. We have not assumed royalty payment for the quarter
Gujarat Gas Volumes are expected to increase 7.4% YoY to 3.5 mmscmd on account of an
increase in LNG volumes. Realisations would improve 40.6% YoY to 19.7 per scm to
pass on higher gas costs to the customers. Margins would decline YoY by 120 bps
to 21.1% in Q2CY11E on account of higher procurement of LNG
GSPL Revenues are expected to remain flat due to lower gas volumes of 35.8 mmscmd in
Q1FY12 against 36.2 mmscmd YoY. We expect a marginal increase in transmission
charges from | 0.76 per scm to | 0.78 per scm YoY. A change in the depreciation
policy would mainly contribute to profit growth during the quarter
Hindustan
Petroleum
We expect a 64.1% YoY increase in revenues due to a 7.1% increase in retail sales
volumes to 7.2 MT and higher product prices. We expect refining margins of $6.9
per bbl against $3.7 per bbl YoY and net under-recoveries for OMCs at 8.8% in FY12E
Indraprastha
Gas
Revenues would increase 67.5% YoY on account of a 27% increase in sales volume
to 3.1 mmscmd and 30.8% increase in gross realisation to | 22.2 per scm. However,
margins are expected to decline to 26.6% due to an increase in gas purchase prices
Oil India Revenues are expected to increase YoY mainly due to higher oil and natural gas
realisations. We expect oil production of 6.77 mmboe (higher 17.2% YoY due to
shutdown of NRL refinery last year), subsidy of $51.8 per bbl (| 1560 crore) and net
realisation of $61.3 per bbl in Q1FY12E against $49.7 per bbl YoY
Petronet LNG We expect robust revenues due to higher volumes as well as realisations. We
expect volumes to increase 37.2% YoY to 130.5 trillion British thermal unit (2.5 MT)
in Q1FY12 on account of lower domestic gas production. PAT is expected to
increase due to higher regasification margins of | 33.3 per mmbtu
Shiv Vani Oil We expect revenues to decline marginally by 1% YoY on account of flat order book
of ~| 2,700 crore. The EBITDA margin is expected to increase 250 bps YoY to
46.5% in Q1FY12E
Source: ICICIdirect.com Research
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