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1QFY12 net profit at Rs40.9bn (up 12% yoy) was 20% below our estimates due to lower than
expected oil realisations and higher exploration expenses. Oil production growth remains elusive
while the proposed FPO is likely to remain an overhang unless the govt. provides clarity on the
subsidy sharing mechanism.
1QFY12 net profit was Rs40.9bn (up 12% yoy) while earnings before interest, depreciation,
tax and exploration expenses (EBITDAX) was Rs92.7bn (up 15% yoy). Most of the gain in
EBITDAX would be on account of higher oil prices. While ONGC's own net realisation may be
flat yoy, the higher gross oil price translates into higher earnings from joint venture oil
production and sale of petroleum products which flow through to the bottomline.
Crude oil production from own fields was 5.93mt (down 2% yoy) and the lack of production
growth remains the main operational concern. Actual crude production has been falling below
ONGC's own forecasts due to delays in new projects as well as probably under estimation of
decline rate in older fields. Total oil production was 6.76mt (up 2.3% yoy) with growth being
provided by the share of Cairn's Rajasthan block which produced at 125kbd (vs 44kbd in
1QFY11).
Gross crude realisation was US$121.3 /bbl (vs US$80.8/bbl in 1QFY11), while the net
realisation on sale of own crude was US$48.8 (US$48.1) after payment of subsidy. Total
upstream subsidy paid was Rs120.5bn (up 118% yoy) which was one-third of total underrecoveries
of the oil marketing companies. The absence of a clear cut subsidy sharing
mechanism remains the main concern. In FY11, upstream subsidy was pegged at one-third
for first three quarters only to be raised to 39% in 4Q, that too applicable for the whole year.
Since the principle of one-third was not followed last year, the subsidy proportion could well
be any number (even higher than 39%). The government has proposed to sell 5% of its
holding in ONGC and the resultant FPO has been repeatedly postponed. The main hope is
that an alternative subsidy sharing or oil pricing system is announced prior to the launch of
this FPO.
Exploration expenses (surveys, dry wells) were Rs23.1bn (up 57% yoy) and nearly Rs4bn
above estimates. These expenses tend to vary substantially on a qoq basis which is why we
look at EBITDAX to get a true picture of profitability of underlying operations.
ONGC has been paying 100% of the royalty on Cairn's Rajasthan block (Rs5.67bn in
1QFY12). With the government clearing the Cairn-Vedanta deal subject to acceptance of
royalty cost recoverability, we expect this issue to be settled in favour of ONGC which will
provide postive earnings surprise in subsequent quarters.
For ONGC Videsh (where financial results were not disclosed), oil production was 1.73mt was
up 3.2% with most of the growth coming from the Sakhalin fields in Russia.
Management will host a call tomorrow at 1400 hrs to discuss these results
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 net profit at Rs40.9bn (up 12% yoy) was 20% below our estimates due to lower than
expected oil realisations and higher exploration expenses. Oil production growth remains elusive
while the proposed FPO is likely to remain an overhang unless the govt. provides clarity on the
subsidy sharing mechanism.
1QFY12 net profit was Rs40.9bn (up 12% yoy) while earnings before interest, depreciation,
tax and exploration expenses (EBITDAX) was Rs92.7bn (up 15% yoy). Most of the gain in
EBITDAX would be on account of higher oil prices. While ONGC's own net realisation may be
flat yoy, the higher gross oil price translates into higher earnings from joint venture oil
production and sale of petroleum products which flow through to the bottomline.
Crude oil production from own fields was 5.93mt (down 2% yoy) and the lack of production
growth remains the main operational concern. Actual crude production has been falling below
ONGC's own forecasts due to delays in new projects as well as probably under estimation of
decline rate in older fields. Total oil production was 6.76mt (up 2.3% yoy) with growth being
provided by the share of Cairn's Rajasthan block which produced at 125kbd (vs 44kbd in
1QFY11).
Gross crude realisation was US$121.3 /bbl (vs US$80.8/bbl in 1QFY11), while the net
realisation on sale of own crude was US$48.8 (US$48.1) after payment of subsidy. Total
upstream subsidy paid was Rs120.5bn (up 118% yoy) which was one-third of total underrecoveries
of the oil marketing companies. The absence of a clear cut subsidy sharing
mechanism remains the main concern. In FY11, upstream subsidy was pegged at one-third
for first three quarters only to be raised to 39% in 4Q, that too applicable for the whole year.
Since the principle of one-third was not followed last year, the subsidy proportion could well
be any number (even higher than 39%). The government has proposed to sell 5% of its
holding in ONGC and the resultant FPO has been repeatedly postponed. The main hope is
that an alternative subsidy sharing or oil pricing system is announced prior to the launch of
this FPO.
Exploration expenses (surveys, dry wells) were Rs23.1bn (up 57% yoy) and nearly Rs4bn
above estimates. These expenses tend to vary substantially on a qoq basis which is why we
look at EBITDAX to get a true picture of profitability of underlying operations.
ONGC has been paying 100% of the royalty on Cairn's Rajasthan block (Rs5.67bn in
1QFY12). With the government clearing the Cairn-Vedanta deal subject to acceptance of
royalty cost recoverability, we expect this issue to be settled in favour of ONGC which will
provide postive earnings surprise in subsequent quarters.
For ONGC Videsh (where financial results were not disclosed), oil production was 1.73mt was
up 3.2% with most of the growth coming from the Sakhalin fields in Russia.
Management will host a call tomorrow at 1400 hrs to discuss these results
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