India Equity Research: Oil and Gas :: Q2FY12 Result Preview::ICICI Securities

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Oil and Gas
ƒ Brent crude oil prices decline 3.7% QoQ to US$112.4 per barrel
High liquidity and weak monetary policy in the global markets led to yet
another quarter of higher crude oil prices. The average Brent crude oil
prices increased 47.1% YoY from US$76.4 per bbl in Q2FY12 to
US$112.4 per bbl in Q2FY12. However, Brent crude oil prices declined
to US$102-104 per bbl at the end of the current quarter on account of
fears of a slowdown in the global economy. Overall, for the quarter,
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.
ƒ Gross under-recoveries for Q2FY12E at ~| 23,100 crore
The increase in petroleum product prices (diesel, kerosene and LPG)
and changes in duty structure would reduce the estimated gross crude
oil under-recoveries from | 43,597 crore in Q1FY12 to | 23,144 crore in
Q2FY12E. We have modelled upstream companies share of subsidy
burden at 33.3% in Q2FY12E on the basis of media reports. We estimate
upstream, downstream and the government will bear subsidy burden of
| 7,714 crore, | 2,037 crore (8.8% share) and | 13,394 crore (57.9%
share), respectively in Q2FY12. Hence, we believe that oil marketing
companies (HPCL, BPCL and IOC) would report profits in the current
quarter against loss in the corresponding quarter.
ƒ Gross refining margin to increase QoQ
Singapore gross refining margins (GRM) have increased QoQ from $8.5
per barrel in Q1FY12 to $9.1 per barrel in Q2FY12 mainly on account of
higher spread on middle distillates in Asia. This would benefit refiners
like RIL, Essar Oil, CPCL and MRPL.
ƒ Lower domestic gas volumes to be replaced by higher priced LNG
The decline in gas production from the Reliance KG-D6 basin from ~58
mmscmd in Q2FY11 to 44-45 mmscmd in Q2FY12E 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 volumes YoY on the back of higher demand from the
industrial and CNG segment.

: Company specific view
Company Remarks
Bharat
Petroleum
We expect 46% YoY increase in revenues due to increase in retail sales volumes &
higher product prices. We expect refining margins of $6.6/bbl vs. $2.8/bbl YoY. 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 under-recoveries for OMCs at 8.8% in FY12E
Cairn India Ltd Revenues would increase 53% YoY due to higher production from the Mangala field.
The net oil & gas production would increase 8.4% YoY to 102235.8 boepd while oil
realisation is expected to increase by 46.3% YoY to $100.1 per bbl. We have modelled
royalty payments on MBA field (70% stake) on a retrospective basis
Gujarat Gas We expect a 25% YoY increase in revenues on account of increase in industrial retail
prices to pass on the higher LNG cost. The total volumes at 3.37 mmscmd are
expected to remain flat with a marginal 1.4% YoY decline. EBITDA margin at 23.2%
would exhibit a 540 bps YoY increase
GSPL Revenues are expected to witness 14.1% YoY growth on account of higher gas
volumes of 36.8 mmscmd in Q2FY12 against 35.3 mmscmd YoY. We expect a
marginal increase in transmission charges from | 0.77 per scm to | 0.80 per scm YoY
Hindustan
Petroleum
We expect a 44.9% YoY increase in revenues due to increase in retail sales volumes
and higher product prices. We expect refining margins of $6.6 per bbl against $2.7
per bbl YoY. We expect HPCL 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 under-recoveries for OMCs at 8.8% in FY12E
Indraprastha Gas Revenues would increase 33.7% YoY on account of a 27% increase in sales volume to
3.22 mmscmd and 30.8% increase in gross realisation to | 22.35 per scm. The CNG
price is expected to be at | 29.9 per kg in this quarter compared to | 27.23 in Q2FY11
Oil India Revenues are expected to increase YoY mainly due to higher net oil realisations. We
expect oil production of 6.70 mmboe (lower 2.18% YoY), subsidy of $31.76 per bbl (|
946.7 crore vs. | 399 crore YoY) and net realisation of $76 per bbl in Q2FY12E against
$63.2 per bbl YoY
Petronet LNG We expect robust revenues due to higher volumes as well as realisations. We expect
volumes to increase 40.4% YoY to 140.2 trillion British thermal units (2.7 mmt) in
Q2FY12 on account of higher spot volumes (19.6 tbtu). PAT is expected to increase
due to higher regasification margins of | 33.3 per mmbtu
Shiv Vani Oil We expect revenues to increase by 14.3% YoY on the back of order book of ~| 2,700
crore. Revenues QoQ would be lower due to the seasonal impact of reduced seismic
activities. The EBITDA margin is expected to increase 120 bps YoY to 46.7% in
Q2FY12E
Source: ICICIdirect.com Research

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