Funda: Q3FY15 Result Review - Oil and Natural Gas Corporation (ONGC) :HDFC Sec

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Q3FY15 Standalone results review The company reported 50% decline in Net profit to Rs 35712.0Mn in Q3FY15 due to lower other income and exploration write offs  The net sales for Q3FY15 at Rs.187147.0 Mn fell 9.8% Y-o-Y and 8.1% Q-o-Q owing to lower net realizations of crude oil and lower gas production. As per the government notification for Q3FY15 subsidy sharing pattern, the total upstream contribution was at Rs109 bn. During Q3FY15, ONGC’s contribution to the upstream subsidy share was at 86.8% as compared to 86.4% in Q3FY14. Net realizations on sales volumes of crude oil from nominated blocks fell to US$35.57/bbl as compared to US$45.98/bbl in Q3FY14. ONGC’s subsidy payout stood at Rs.94.58b (v/s Rs.137.64b in Q3FY14 and Rs.136.4b in Q2FY15). The subsidy continued to be ad-hoc at $40.4 per barrel in Q3FY15 vs $62.2 in Q3FY14. Discount on crude oil fell 35.0% Y-o-Y and 33.5% Q-o-Q to US$40.4/bbl.  Oil production (excl. JV) stood at 5.3mmt (+3.37 Y-o-Y, +1.81% Q-o-Q); sales (excl. JV) were at 5.01mmt (+5.7% Y-o-Y and +1.7% Q-o-Q). Gas production (excl. JV) stood at 5.6bcm (-4.5% Y-o-Y, -5.5% QoQ); sales (excl. JV) were at 4.23bcm (-7.4% Y-o-Y, -3.7% Q-o-Q). JV oil production was 0.95mmt (-2.8% Y-o-Y, +9.7% Q-o-Q), while JV gas production was 0.39bcm (-2.2% YoY, +12.9% Q-o-Q). Q-o-Q and Y-o-Y gas production decline was led by PMT fields.

 Fall in crude prices and diesel de-control has led to fall in total oil under recovery to Rs 671bn which declined 33% Y-o-Y basis in 9MFY15. However, ONGC’s share has fallen only by 10% to Rs 363bn. ONGC’s post discount realization of Rs.2205 per barrel is among the lowest in recent times. We believe the Government would keep maximum benefits of declining under recoveries. However, this anomaly will have to be removed and part benefits will be passed on to upstream players to boost domestic production. We believe that the Government will soon bring a stable subsidy sharing mechanism.  High write-offs increase D,D&A sharply on Q-o-Q basis ONGC’s D,D&A expenses in Q3FY15 stood at Rs.58b; +32% YoY and +33% QoQ. The sharp QoQ increase is led by dry well write-offs of Rs.8.6b in Mahanadi basin, Rs.4.3b in Ravva block and some write-off in KG basin blocks. Historically it has been observed that the D,D&A charges are normally higher during second half of the year as ONGC typically charges the well write-offs at the end of the year when it reviews its exploration performance.  Two more hydrocarbon discoveries have been notified. Oil & Gas Discovery in well G-1-NE-1 in deep water PML Block Vashishta, KG Offshore, KG Basin and Gas discovery in well G-1-NE-2 in deep water Block Vashishta, KG Offshore, KG Basin With this ONGC has so far made total 18 discoveries in 2014-15 against 14 discoveries during 2013-14.  Prime Minister of India, Shri Narendra Modi dedicated the 2nd unit of OTPC’s (ONGC Tripura Power Corporation Limited), 726.6 MW gas-based power plant at Palatana, Tripura to the Nation on December 01, 2014. OTPC is a joint venture of ONGC, IL&FS, Govt. of Tripura and others. ONGC Tripura Power Company is one of the biggest Clean Development Mechanism (CDM) projects of the world.  ONGC and Petronet LNG Limited (PLL) have executed long pending Extraction Agreement on 6th January 2015. The agreement would enable PLL to commence supply of Rich LNG as feed to ONGC’s C2-C3 Plant in Dahej SEZ for extraction of higher hydrocarbons [Ethane(C2), Propane(C3) and Butane(C4)], which would be feed stock for OPaL.  Government of India vide letter dated 1st Jan 2015, has decided to reimburse an amount of Rs 420Cr as compensation of past cost incurred by ONGC in the discovered Panna, Mukta, Tapti and Ravva field awarded to joint ventures/Private companies. Accordingly, an amount of Rs 26 Cr has been adjusted against the net carrying amount of assets of those fields and balance amount of Rs 394Cr has been accounted for as other income during the quarter and nine months ended 31-Dec-2014.  ONGC Videsh produced 4.144 MMT of oil and 2.419 BCM of gas in 9MFY15 vs 4.125 MMT of oil and 2.070 BCM of gas in the corresponding period last year. Conclusion ONGC is India’s largest national oil & gas company, primarily engaged in the exploration, development and production of crude oil and natural gas in both India and abroad. ONGC, through its wholly owned subsidiary ONGC Videsh Ltd, has presence across 14 countries in E&P activities. The company is also present in downstream refining and marketing operations in India through its subsidiary MRPL, which operates a refinery with an installed capacity of 15 MMTPA. Global crude oil price benchmark Brent has slumped to less than $50 a barrel in December from the peak of $116 in 2014 due to U.S. shale oil output going up and sluggish global demand growth. Oil and Natural Gas Corporation (ONGC) reported 50% decline in Net profit for the Q3FY15, weighed down by lower realizations, decrease in other income and higher exploration costs write-off. The company paid Rs 9,458 crore in fuel subsidy during the quarter when its average crude oil price realisation (before subsidy/discount) fell to USD 76 per barrel from USD 108.19 in Q3FY14

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011515