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ONGC
Strong 3Q reconfirms gains from reforms
„3Q recurring profit up 88% and 9M up 14% YoY; Retain Buy
ONGC’s 3Q profit is up 88% YoY driven by higher oil & gas price, other income
and lower DD&A. Strong 3Q confirms ONGC has gained from oil & gas price
reforms. ONGC’s 9M profit is up 14% YoY. We see upside risk to our FY11E
profit but have kept it unchanged. ONGC currently prices long term net oil price of
just US$48/bbl, while we expect it to be US$63/bbl. We retain our Buy on ONGC.
Higher oil & gas price, lower DD&A & higher other income
3Q profit was driven by an 8% YoY rise in net oil price and 106% YoY higher gas
price. Rs7bn YoY rise in other income and 22% lower DD&A also boosted profit.
3Q net oil price at US$65/bbl, up 12% YoY and 3% QoQ
ONGC’s 3Q oil price net of subsidy at US$64.8/bbl is 12% YoY higher (8% YoY
higher in rupee terms). 3Q net oil price is also 3% QoQ higher. APM gas price is
up sharply at US$4.2/mmbtu due to APM gas price hike in June 2010.
Upside risk to FY11E earnings but kept unchanged
To achieve our FY11 standalone earnings estimate, ONGC’s 4Q profit (Rs38bn)
would have to be 33% QoQ lower and up 2% YoY on the low base of 4Q FY10.
Our FY11 earnings estimate assumes a net oil price of US$57/bbl, while its
FY11E net oil price may be higher at US$58-59/bbl. We thus see upside risk to
our FY11 earnings estimate but have kept earnings unchanged.
Government sops ahead of FPO in 3Q; will more follow?
ONGC’s 3Q reported profit was boosted by gas pool arrears of Rs19bn. It was in
our view a long overdue correct step taken by the government immediately before
proposed 5% stake sale. Will more such overdue correct steps relating to royalty
on Rajasthan oil and on subsidy be taken before the stake sale?
ONGC’s3Q FY11 earnings review
3Q profit up 88% YoY
Higher oil & gas price, other income and lower DD&A
ONGC’s 3Q FY11 recurring profit is up 88% YoY, driven by
„ 106% YoY jump in APM gas price in rupee terms
„ 8% YoY rise in oil price net of subsidy in rupee terms
„ Rs7bn YoY rise in other income. In 3Q FY10 ONGC had written back interest
income on loans to OVL accounted in 1H and so other income was negative
„ 22% YoY lower DD&A at Rs36.4bn
ONGC’s 3Q reported profit up 132% YoY at Rs71bn
Reported profit boosted by gas pool arrears of Rs19bn
ONGC’s 3Q reported profit is 132% YoY higher at Rs71bn. Reported profit was
boosted by gas pool arrears of Rs19bn. 10-12% of ONGC’s APM gas priced at
US$1.9/mmbtu until May 2010, used to be sold to consumers other than power
and fertilizer at US$4.75/mmbtu. The excess of price paid by consumers over
APM gas price of ONGC was lying in the gas pool accounts.
When APM gas price was hiked to US$4.2/mmbtu in June 2010, the pricing order
also said accumulated arrears in the gas pool accounts would be given to ONGC.
This amount after retaining Rs4bn (to settle any pending matters) has now been
given to ONGC. This amount is nothing but excess price paid for its APM price by
consumers.
ONGC’s 3Q APM gas price 114% YoY higher in dollar terms
APM gas price hiked to US$4.2/mmbtu in June 2010 from US$1.9/mmbtu
ONGC’s APM gas price is 114% YoY higher in 3Q in dollar terms. The gas price
rise is due to hike in APM gas price to US$4.2/mmbtu from June 2010. APM gas
price was US$2/mmbtu and that net of royalty US$1.9/mmbtu until May 2010.
JV gas price YoY flat due to lower PMT gas production in 3Q
Gas price from joint venture (JV) pre-NELP blocks like Ravva and Panna, Mukta
& Tapti (PMT) is higher at US$4.0-5.7/mmbtu. ONGC’s 3Q FY11 JV gas price is
flat YoY due to temporary shutdown of the higher priced (US$5.7/mmbtu) PMT
gas. The PMT shutdown of 22 days in 3Q FY11 also explains the 13% YoY
decline in JV gas volumes.
3Q oil price net of subsidy up 12% YoY in dollar terms
Gross oil price up 16% YoY; Net price up 8% YoY in INR
ONGC’s gross oil price is up 16% YoY at US$89.1/bbl. Subsidy hit is up 28% YoY
at US$24/bbl from US$19/bbl in 3Q FY10. ONGC’s oil price net of subsidy is up
12% YoY at US$64.8/bbl. However, 4% YoY stronger rupee meant ONGC’s net
oil price in rupee terms is 8% YoY higher in 3Q
ONGC’s 3Q FY11 oil sales volume up 4% YoY
Own oil sales volume decline by 2% YoY and JV volumes up 78% YoY
ONGC’s 3Q FY11 oil sales volumes are up 4% YoY at 5.9mmt
„ Sales volumes from own acreage (nomination blocks) is 2% YoY lower at
5.1mmt. 3Q sales volume is lower despite oil production being up 1% YoY
„ Sales volumes from JV (pre-NELP) blocks are up 78% YoY driven by rampup of Rajasthan oil production (ONGC’s share 26%)
Value added products volume down but realization up
Volumes 3% YoY lower; realization up 7-17% YoY
ONGC’s value added products volumes are down 3% YoY due to production loss
at the LPG production plant in Uran. Ethane and propane production is also lower
due to lower PMT production.
However, price realization of all the products is up 7-17% YoY in 3Q FY11
DD&A 22% YoY lower at Rs36bn on high base of 3Q FY10
45% YoY lower dry wells write-off; 47% YoY lower survey cost
ONGC’s 3Q FY11 DD&A is 22% YoY lower at Rs36.4bn. ONGC’s 3Q FY10
DD&A at Rs47bn was its highest ever quarterly DD&A. It was boosted by large
dry well write-off of Rs25bn. In 3Q FY11 dry wells write-off is 45% YoY lower on
that high base. Survey costs are also 47% YoY lower.
OVL’s production volume up 8-9% YoY in 3Q and 9M
The production volumes of ONGC’s 100% subsidiary ONGC Videsh (OVL) are up
8% YoY in 3Q and 9% YoY in 9M.
FY11E earnings kept unchanged
9M standalone profit 14% YoY higher
9M FY11 standalone profit of ONGC is up 14% YoY. We are assuming 11% YoY
rise in ONGC’s FY11E standalone profit and 14% YoY in consolidated profit.
Upside risk to FY11 earnings, but estimate kept unchanged
To meet our FY11 estimate; 4Q has to be down 33% QoQ and up 2% YoY
To achieve our FY11 standalone earnings estimate, ONGC’s 4Q profit at Rs38bn
would have to be 33% QoQ lower and up 2% YoY on the low base of 4Q FY10.
We expect ONGC’s 4Q profit to be higher than Rs38bn, and thus see upside risk
to our FY11 earnings estimate.
4Q net oil price likely to be QoQ lower but still may beat FY11 estimate
We expect ONGC’s 4Q net oil price to be QoQ lower at US$58-59/bbl. ONGC’s
9M net oil price is US$58.7/bbl. Thus FY11E net oil price of ONGC is also likely to
be US$58-59/bbl. Our FY11E standalone profit estimate is based on oil price net
of subsidy of US$57/bbl. Thus we think ONGC’s FY11E net oil price is likely to be
higher than our estimate of US$57/bbl. We therefore see upside risk to our FY11
earnings estimate. However, we have kept earnings unchanged.
Retain Buy
Strong 3Q results confirm ONGC has gained from reforms
ONGC’s 3Q FY11 recurring profit is 88% YoY higher driven by higher oil & gas
prices. A hefty fuel price hike in June 2010 cut its subsidy and boosted its net oil
price. APM gas price was also doubled from June 2010. Thus strong 3Q profit
growth confirms ONGC has gained from oil & gas price reforms.
Government sops ahead of FPO in 3Q; will more follow?
ONGC’s 3Q reported profit was boosted by gas pool arrears of Rs19bn. It was a
long overdue correct step taken by the government immediately before proposed
5% stake sale. Will more such overdue correct steps relating to royalty on
Rajasthan oil and on subsidy be taken before the stake sale?
ONGC’s PO implies 35% potential upside; Retain Buy
ONGC’s PO of Rs1,507/share implies potential upside of ~35%. ONGC currently
prices a long term net oil price of just US$48/bbl, while we expect it to be
US$63/bbl. Thus it share price does not reflect gains from reforms, in our view.
We retain our Buy on ONGC.
Price objective basis & risk
ONGC (ONGCF)
Our DCF-based PO of Rs1, 507 incorporates the DCF of 2P reserves (Rs1,252),
best-case resources (Rs25), exploration upside (Rs62), as well as net cash
(Rs75), and market value of investments (Rs93). We have assumed WACC of
12.9pct while calculating DCF value. DCF value is based on long-term Brent price
forecast of US$85/bbl. However, our fair value is effectively based on long-term
oil price net of subsidy of US$63.2/bbl given our subsidy assumptions. We think
that DCF is the most appropriate measure to value E&P assets. Risks are (1)
Standard oil and gas industry operating risks which include exploration,
development and production risks, oil price fluctuations, currency risk and reserve
estimation, (2) sovereign risks, which include changes in the government and/or
policies which may have a direct impact on the business, cash flow and profit. (3)
ONGC's subsidy hit being higher than assumed by us (4) Significant decline in
value of ONGC's investments in IOC and GAIL.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ONGC
Strong 3Q reconfirms gains from reforms
„3Q recurring profit up 88% and 9M up 14% YoY; Retain Buy
ONGC’s 3Q profit is up 88% YoY driven by higher oil & gas price, other income
and lower DD&A. Strong 3Q confirms ONGC has gained from oil & gas price
reforms. ONGC’s 9M profit is up 14% YoY. We see upside risk to our FY11E
profit but have kept it unchanged. ONGC currently prices long term net oil price of
just US$48/bbl, while we expect it to be US$63/bbl. We retain our Buy on ONGC.
Higher oil & gas price, lower DD&A & higher other income
3Q profit was driven by an 8% YoY rise in net oil price and 106% YoY higher gas
price. Rs7bn YoY rise in other income and 22% lower DD&A also boosted profit.
3Q net oil price at US$65/bbl, up 12% YoY and 3% QoQ
ONGC’s 3Q oil price net of subsidy at US$64.8/bbl is 12% YoY higher (8% YoY
higher in rupee terms). 3Q net oil price is also 3% QoQ higher. APM gas price is
up sharply at US$4.2/mmbtu due to APM gas price hike in June 2010.
Upside risk to FY11E earnings but kept unchanged
To achieve our FY11 standalone earnings estimate, ONGC’s 4Q profit (Rs38bn)
would have to be 33% QoQ lower and up 2% YoY on the low base of 4Q FY10.
Our FY11 earnings estimate assumes a net oil price of US$57/bbl, while its
FY11E net oil price may be higher at US$58-59/bbl. We thus see upside risk to
our FY11 earnings estimate but have kept earnings unchanged.
Government sops ahead of FPO in 3Q; will more follow?
ONGC’s 3Q reported profit was boosted by gas pool arrears of Rs19bn. It was in
our view a long overdue correct step taken by the government immediately before
proposed 5% stake sale. Will more such overdue correct steps relating to royalty
on Rajasthan oil and on subsidy be taken before the stake sale?
ONGC’s3Q FY11 earnings review
3Q profit up 88% YoY
Higher oil & gas price, other income and lower DD&A
ONGC’s 3Q FY11 recurring profit is up 88% YoY, driven by
„ 106% YoY jump in APM gas price in rupee terms
„ 8% YoY rise in oil price net of subsidy in rupee terms
„ Rs7bn YoY rise in other income. In 3Q FY10 ONGC had written back interest
income on loans to OVL accounted in 1H and so other income was negative
„ 22% YoY lower DD&A at Rs36.4bn
ONGC’s 3Q reported profit up 132% YoY at Rs71bn
Reported profit boosted by gas pool arrears of Rs19bn
ONGC’s 3Q reported profit is 132% YoY higher at Rs71bn. Reported profit was
boosted by gas pool arrears of Rs19bn. 10-12% of ONGC’s APM gas priced at
US$1.9/mmbtu until May 2010, used to be sold to consumers other than power
and fertilizer at US$4.75/mmbtu. The excess of price paid by consumers over
APM gas price of ONGC was lying in the gas pool accounts.
When APM gas price was hiked to US$4.2/mmbtu in June 2010, the pricing order
also said accumulated arrears in the gas pool accounts would be given to ONGC.
This amount after retaining Rs4bn (to settle any pending matters) has now been
given to ONGC. This amount is nothing but excess price paid for its APM price by
consumers.
ONGC’s 3Q APM gas price 114% YoY higher in dollar terms
APM gas price hiked to US$4.2/mmbtu in June 2010 from US$1.9/mmbtu
ONGC’s APM gas price is 114% YoY higher in 3Q in dollar terms. The gas price
rise is due to hike in APM gas price to US$4.2/mmbtu from June 2010. APM gas
price was US$2/mmbtu and that net of royalty US$1.9/mmbtu until May 2010.
JV gas price YoY flat due to lower PMT gas production in 3Q
Gas price from joint venture (JV) pre-NELP blocks like Ravva and Panna, Mukta
& Tapti (PMT) is higher at US$4.0-5.7/mmbtu. ONGC’s 3Q FY11 JV gas price is
flat YoY due to temporary shutdown of the higher priced (US$5.7/mmbtu) PMT
gas. The PMT shutdown of 22 days in 3Q FY11 also explains the 13% YoY
decline in JV gas volumes.
3Q oil price net of subsidy up 12% YoY in dollar terms
Gross oil price up 16% YoY; Net price up 8% YoY in INR
ONGC’s gross oil price is up 16% YoY at US$89.1/bbl. Subsidy hit is up 28% YoY
at US$24/bbl from US$19/bbl in 3Q FY10. ONGC’s oil price net of subsidy is up
12% YoY at US$64.8/bbl. However, 4% YoY stronger rupee meant ONGC’s net
oil price in rupee terms is 8% YoY higher in 3Q
ONGC’s 3Q FY11 oil sales volume up 4% YoY
Own oil sales volume decline by 2% YoY and JV volumes up 78% YoY
ONGC’s 3Q FY11 oil sales volumes are up 4% YoY at 5.9mmt
„ Sales volumes from own acreage (nomination blocks) is 2% YoY lower at
5.1mmt. 3Q sales volume is lower despite oil production being up 1% YoY
„ Sales volumes from JV (pre-NELP) blocks are up 78% YoY driven by rampup of Rajasthan oil production (ONGC’s share 26%)
Value added products volume down but realization up
Volumes 3% YoY lower; realization up 7-17% YoY
ONGC’s value added products volumes are down 3% YoY due to production loss
at the LPG production plant in Uran. Ethane and propane production is also lower
due to lower PMT production.
However, price realization of all the products is up 7-17% YoY in 3Q FY11
DD&A 22% YoY lower at Rs36bn on high base of 3Q FY10
45% YoY lower dry wells write-off; 47% YoY lower survey cost
ONGC’s 3Q FY11 DD&A is 22% YoY lower at Rs36.4bn. ONGC’s 3Q FY10
DD&A at Rs47bn was its highest ever quarterly DD&A. It was boosted by large
dry well write-off of Rs25bn. In 3Q FY11 dry wells write-off is 45% YoY lower on
that high base. Survey costs are also 47% YoY lower.
OVL’s production volume up 8-9% YoY in 3Q and 9M
The production volumes of ONGC’s 100% subsidiary ONGC Videsh (OVL) are up
8% YoY in 3Q and 9% YoY in 9M.
FY11E earnings kept unchanged
9M standalone profit 14% YoY higher
9M FY11 standalone profit of ONGC is up 14% YoY. We are assuming 11% YoY
rise in ONGC’s FY11E standalone profit and 14% YoY in consolidated profit.
Upside risk to FY11 earnings, but estimate kept unchanged
To meet our FY11 estimate; 4Q has to be down 33% QoQ and up 2% YoY
To achieve our FY11 standalone earnings estimate, ONGC’s 4Q profit at Rs38bn
would have to be 33% QoQ lower and up 2% YoY on the low base of 4Q FY10.
We expect ONGC’s 4Q profit to be higher than Rs38bn, and thus see upside risk
to our FY11 earnings estimate.
4Q net oil price likely to be QoQ lower but still may beat FY11 estimate
We expect ONGC’s 4Q net oil price to be QoQ lower at US$58-59/bbl. ONGC’s
9M net oil price is US$58.7/bbl. Thus FY11E net oil price of ONGC is also likely to
be US$58-59/bbl. Our FY11E standalone profit estimate is based on oil price net
of subsidy of US$57/bbl. Thus we think ONGC’s FY11E net oil price is likely to be
higher than our estimate of US$57/bbl. We therefore see upside risk to our FY11
earnings estimate. However, we have kept earnings unchanged.
Retain Buy
Strong 3Q results confirm ONGC has gained from reforms
ONGC’s 3Q FY11 recurring profit is 88% YoY higher driven by higher oil & gas
prices. A hefty fuel price hike in June 2010 cut its subsidy and boosted its net oil
price. APM gas price was also doubled from June 2010. Thus strong 3Q profit
growth confirms ONGC has gained from oil & gas price reforms.
Government sops ahead of FPO in 3Q; will more follow?
ONGC’s 3Q reported profit was boosted by gas pool arrears of Rs19bn. It was a
long overdue correct step taken by the government immediately before proposed
5% stake sale. Will more such overdue correct steps relating to royalty on
Rajasthan oil and on subsidy be taken before the stake sale?
ONGC’s PO implies 35% potential upside; Retain Buy
ONGC’s PO of Rs1,507/share implies potential upside of ~35%. ONGC currently
prices a long term net oil price of just US$48/bbl, while we expect it to be
US$63/bbl. Thus it share price does not reflect gains from reforms, in our view.
We retain our Buy on ONGC.
Price objective basis & risk
ONGC (ONGCF)
Our DCF-based PO of Rs1, 507 incorporates the DCF of 2P reserves (Rs1,252),
best-case resources (Rs25), exploration upside (Rs62), as well as net cash
(Rs75), and market value of investments (Rs93). We have assumed WACC of
12.9pct while calculating DCF value. DCF value is based on long-term Brent price
forecast of US$85/bbl. However, our fair value is effectively based on long-term
oil price net of subsidy of US$63.2/bbl given our subsidy assumptions. We think
that DCF is the most appropriate measure to value E&P assets. Risks are (1)
Standard oil and gas industry operating risks which include exploration,
development and production risks, oil price fluctuations, currency risk and reserve
estimation, (2) sovereign risks, which include changes in the government and/or
policies which may have a direct impact on the business, cash flow and profit. (3)
ONGC's subsidy hit being higher than assumed by us (4) Significant decline in
value of ONGC's investments in IOC and GAIL.
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